The Enor Machine Company Is Evaluating a Capital Expenditure Proposal

question 60

Essay

The Enor Machine Company is evaluating a capital expenditure proposal that requires an initial investment of $99,360 and has predicted cash inflows of $20,000 per year for 8 years. It will have no salvage value.
Required:
a.Using a required rate of return of 10%, determine the net present value of the investment proposal.
b.Determine the proposal's internal rate of return.

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Definitions:

Personal Exemptions

A tax deduction allowed by the IRS for oneself and dependents, though it was eliminated for tax years 2018 through 2025 by the Tax Cuts and Jobs Act.

AMT Adjustments

Adjustments required for calculating the Alternative Minimum Tax, an alternative tax system designed to ensure that certain taxpayers pay at least a minimum amount of tax.

Standard Deduction

A fixed dollar amount that reduces the income that is subject to tax and varies according to the taxpayer's filing status.

Taxable Income

The portion of income used to calculate how much tax an individual or a company owes to the government in a given tax year.