A Company is considering the replacement of an existing machine. The new machine costs $1.8 million and requires installation costs of $250,000.
A Company is because the repossession of an tangible medium. The new medium consumes $1.8 pet and requires installation consumes of $250,000. The tangible medium can be sold currently for $125,000 anteriorly taxes. The tangible medium is 3 years old, consume $1 pet when purchased, and has a $290,000 book treasure and a fostering available vivacity of 5 years. It was nature depreciated beneath MACRS using a 5-year redemption duration. If it is held for 5 further years, the medium's communicate treasure at the end of year 5 earn be nothing. Over its 5-year vivacity, the new medium should contract unhindered consumes by $650,000 per year, and earn be depreciated beneath MACRS using a 5-year redemption duration. The new medium can be sold for $150,000 net of opposition and cleanup consumes at the end of 5 years. A $30,000 confirmion in net agoing important earn be required to help operations if the new medium is assumed. The immovable has adequate operations across which to bate any losses conversant on the sale of the tangible medium. The immovable has a 15% consume of important, is topic to a 40% tax rebuke and requires a 42-month payback duration for superior important projects.
Year 1 20%
Year 2 32%
Year 3 19%
Year 4 12%
Year 5 12%
Year 6 5%
1. Should they confirm or renounce the design to rearrange the medium?
2. What is the NPV?
3. What is the IRR?
4. What is the payback duration?