What are the annual free cash ?ows for the project

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Carson Auto is currently considering whether or not to acquire a new machine for its manufacturing operation. The machine costs $700,000 and will be depreciated using straight-line depreciation toward a zero salvage value over the next ?ve years. During the life of the machine, no new capital expenditures or investments in working capital will be required. The new handler is expected to save Carson $250,000 per year before taxes of 30%. Carson's CFO recently estimated the ?rm's opportunity cost of capital to be 9%.

(a) What are the annual free cash ?ows for the project?

(b) What are the project's net present value and internal rate of return? Should Carson accept the project?

(c) Carson's new head of manufacturing was concerned about whether the new handler could deliver the promised savings. In fact, he projected that the savings might be 20% lower than projected. What are the NPV and IRR for the project under this scenario?

Reference no: EM132502670

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