New machine to replace a current machine

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Reference no: EM131434703

Background

Allgood Incorporated is considering purchasing a new machine to replace a current machine. The new machine will cost $390,000 and use working capital of $9,000. The current machine can be sold for $6,500. The new machine has a five-year useful life and no salvage value. The hurdle rate is 8 percent. If the new machine is purchased, the operating cash inflows are listed below:

  • Year 1 - $130,000.
  • Year 2 - $130,000.
  • Year 3 - $130,000.
  • Year 4 - $130,000.
  • Year 5 - $130,000 (this includes the $9000 release of working capital).

Instructions

For this assignment, address the following:

Calculate the following elements of a capital budget (ignoring income taxes for this step):

The payback period.

Accounting rate of return.

Internal rate of return.

Assuming an income tax rate of 40 percent, calculate the net present value. Remember to calculate the after-tax cash flows from operations and the tax savings from depreciation

For this assignment do in excel. I need all the references. I will not except it if it is not done in excel and referenced.

Reference no: EM131434703

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