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A firm is considering an investment in a new machine with a price of $17.5 million to replace its existing machine. The current machine has a book value of $7.2 million and a market value of $5.9 million. The new machine is expected to have a 4-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $7.2 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $430,000 in net working capital. The required return on the investment is 10 percent and the tax rate is 23 percent. The company uses straight-line depreciation.
What is the NPV of the decision to purchase a new machine?
What is the IRR of the decision to purchase a new machine?
What is the NPV of the decision to purchase the old machine?
What is the IRR of the decision to purchase the old machine?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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