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Problem
Capital Budgeting Decisions. As the capital budgeting director of Denver Plastics Inc., you are analyzing the purchase of a part-molding system. The new system has a price of $1,050,000, plus an additional $50,000 in installation costs. The new system falls into the MACRS 5-year class, has a 5- year economic life, and a $400,000 salvage value. The new system will require a $150,000 increase in the spare parts inventory. The primary advantage of the new system is that it will decrease operating costs by $275,000 per year. Denver Plastics has a 10% cost of capital and a marginal tax rate of 40%. Should it purchase the system?
1. Calculate NPV
2. Calculate IRR
3. Calculate MIRR
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Project A Project B Initial investment $80,000 $50,000 Year Cash Flows 1 $15,000 $15,000 2 $20,000 $15,000 3 $25,000 $15,000 4 $30,000 $15,000 5 $35,000 $15,000 Please help me. I need solutions please.
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