Omaha Plating Corporation Is Considering Purchasing a Machine for $1,500,000

question 136

Essay

Omaha Plating Corporation is considering purchasing a machine for $1,500,000.The machine will generate a constant after-tax income of $100,000 per year for 15 years.The firm will use straight-line (SL)depreciation for the new machine over 10 years with no residual value.Note: the PV factor for 5 years,10% is 0.386;the PV annuity factor for 10%,10 years is 6.145;and,the PV annuity factor for 10%,5 years is 3.791.
Required: Using the desired rate of return of 10%,what is the estimated net present value (NPV)of the investment project (rounded to the nearest thousand)? Assume that the cash flows occur at year-end.

Comprehend and calculate the payback period for investments.

Understand and determine the simple rate of return (accounting rate of return) for various projects.

Analyze investment projects using the profitability index.

Calculate the internal rate of return (IRR) for investments and understand its significance in investment decisions.

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Definitions:

Corporate Opportunity

A legal doctrine that restricts leaders of a corporation from taking personal advantage of an opportunity that should belong to the corporation.

Safe Harbor

A provision in a law or regulation that provides protection from liability or penalty under specific situations or conditions.

Corporate Manager

An individual responsible for leading, directing, and overseeing the operations and strategy of a corporation.

Insider Trading

Using inside information to either cheat the corporation or take unfair advantage of corporate outsiders.