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Thomas Products Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $15,000 annually. Thomas will use the MACRS accelerated method to depreciate the machine (5-year MACRS class life), and it expects to sell the machine at the end of its 6-year operating life for $10,000. The firm expects to be able to reduce net operating working capital by $12,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 6 years. Thomas’s marginal tax rate is 40 percent, and it uses a discount rate of 12 percent to evaluate projects of this nature. If the machine costs $50,000, what is the project’s NPV and IRR?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92714910

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