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In: Finance

YMCMB Inc. is evaluating an equipment that costs $60,000. The expected benefits per year are expected...

YMCMB Inc. is evaluating an equipment that costs $60,000. The expected benefits per year are expected to be $19,500 while costs are expected to be $9,500. This equipment should have a useful life of 10 years and the company’s WACC is 7%. Calculate the firm’s NPV and IRR. Should YMCMB buy this equipment? (Hint: find the cash flows first, then calculate the firm’s NPV).

Solutions

Expert Solution

Use IRR function in Excel

IRR = 10.558%

NPV = 10,235.82

(see table below)

Discount rate 7.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
             (60,000.000) 0                           (60,000.00)                       (60,000.00)
               10,000.000 1                               9,345.79                       (50,654.21)
               10,000.000 2                               8,734.39                     (41,919.818)
               10,000.000 3                               8,162.98                     (33,756.840)
               10,000.000 4                               7,628.95                     (26,127.887)
               10,000.000 5                               7,129.86                       (18,998.03)
               10,000.000 6                               6,663.42                     (12,334.603)
               10,000.000 7                               6,227.50                          (6,107.11)
               10,000.000 8                               5,820.09                             (287.01)
               10,000.000 9                               5,439.34                            5,152.32
               10,000.000 10                               5,083.49                          10,235.82

jeff jeffy answered 8 months ago
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