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Problem:

Mars, Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually. The company will depreciate the cost of the new machine using the straight line method over the project life and it expects to sell the machine at the end of its 5-year life for $10,000. The firm expects to be able to reduce net working capital by $15,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 5 years. Mars' marginal tax rate is 40%, and it uses a 12% required rate of return to evaluate projects of this nature.

Required:

If the machine costs $60,000, what are the NPV and IRR of the project?

Note: Explain all steps comprehensively.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170820

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