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Question: Company ABCD is considering purchasing a new machine to replace an old one. The old machine has a zero book value and zero scrappage value; but, the old machine is still working and would last another 10 years. The proposed replacement machine is more efficient and is estimated to produce after-tax cash flows (labor saving and depreciation) of $9,000 per year. The new machine would cost $40,000 delivered and installed and its economic life is estimated to be 10 years. Company ABCD's weighted average cost of capital is 10%.

A. Set up a table, by time period, of cash flows:

B. Calculate the NPV and IRR of the project ? Should the project be undertaken?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92794448

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