Calculate the npv and irr of replacement project

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Consider a new line of equipment that will cost $760,000 and will save a company $160,000 in operating expenses for the next ten years.  It will not affect sales, but it will result in an increase in Net Working Capital of $60,000. 

The new line will replace an old line of equipment that will last for about 5 more years before it could be scrapped for $40,000.  If sold today, the old equipment is worth $120,000.  The old equipment was purchased five years ago for $450,000 and is being depreciated using the MACRS 7-year rates.  The new equipment will also be depreciated using the 7-year rates.  The company's marginal tax rate is 35% and their cost of capital is 11%.

.Calculate the NPV and IRR of this replacement project

Reference no: EM131238271

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