Question

 Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $ 2.15 million. This outlay would be partially offset by the sale of an existing press. The old press has zero book​ value, cost $ 1.01 million 10 years​ ago, and can be sold currently for $ 1.29 million before taxes. As a result of acquisition of the new​ press, sales in each of the next 5 years are expected to be $ 1.65 million higher than with the existing​ press, but product costs​ (excluding depreciation) will represent 54 % of sales. The new press will not affect the​ firm's net working capital requirements. The new press will be depreciated under MACRS- using a​ 5-year recovery period. The firm is subject to a 40 % tax rate. Wells​ Printing's cost of capital is 11.4 % ​(Note: Assume that the old and the new presses will each have a terminal value of $ 0at the end of year​ 6.)

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes              
   Percentage by recovery year*          
Recovery year    3 years    5 years    7 years    10 years
1    33%   20%   14%   10%
2    45%   32%   25%   18%
3    15%   19%   18%   14%
4    7%   12%   12%   12%
5        12%   9%   9%
6        5%   9%   8%
7            9%   7%
8            4%   6%
9                6%
10                6%
11                4%
Totals   100%   100%   100%   100%
               

a. Determine the initial investment required by the new press.

a. Determine the initial investment required by the new press.

Calculate the initial investment will​ be:  ​(Round to the nearest​ dollar.)

Installed cost of new press			$
Proceeds from sale of existing press	$
Taxes on sale of existing press	$
Total after-tax proceeds from sale			$
Initial investment			$

b. Determine the operating cash flows attributable to the new press.​ (Note: Be sure to consider the depreciation in year​ 6.)

c. Determine the payback period.

d. Determine the net present value​ (NPV) and the internal rate of return​ (IRR) related to the proposed new press.

e. Make a recommendation to accept or reject the new​ press, and justify your answer.

SHOW ALL WORK!!! Including formulas

Answer 1