Question
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 |
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