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Question: Dylan's Donuts is thinking of purchasing a piece of equipment. The new equipment would be expected to increase sales by $350,000 a year and increase operating expenses by $105,000 a year. The new equipment would cost $1,260,000 and be depreciated using straight-line to a zero salvage value over a depreciable life of 8 years. The equipment would require additional net working capital of $24,000. It is expected that Dylan's Donuts could sell the equipment at the end of its expected life for $15,000. Dylan's marginal tax rate is 30% and its required rate of return is 12%. Dylan's has a minimum required payback of 3 years.

(a) Determine if the project is worthwhile using the payback method.

(b) Calculate the MIRR of the project.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92806645

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