You Have Been Asked to Evaluate the Purchase of a New

question 22

Essay

You have been asked to evaluate the purchase of a new machine for your company. It will cost $60,000, and it falls into the MACRS 3-year class (Yr. 1 - 33.3%; Yr. 2 - 44.4%; Yr. 3 - 14.8%; Yr. 4 - 7.5%). The purchase will require a $6,000 increase in repair parts inventory. Parts are expensed for tax purposes at the time they are acquired. The machine will replace one $25,000/year operator. It is expected to last for four years when it can be sold including any spare parts still on hand for $5,000. The tax rate is 40% and your company's cost of capital is 12%.
Project the project's cash flows and calculate its NPV and IRR

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Definitions:

Erechtheion

An ancient Greek temple on the north side of the Acropolis of Athens, notable for its Caryatid Porch with sculpted female figures as architectural supports.

Architectural Support

Elements within a structure that provide the necessary stability and strength, such as columns, beams, arches, and foundations.

Temple of Apollo

An ancient sanctuary dedicated to the god Apollo, found in various Greek and Roman cities, known for its oracle and as a center of music, healing, and prophecy.

Hellenistic Architecture

Architectural style of the Hellenistic period, characterized by its variety, innovation, and the spread of Greek culture across the Mediterranean.