Biotech company is considering buying a machine. The cashflows at the beginning of the year for...

Biotech company is considering buying a machine. The cashflows at the beginning of the year for each machine are shown in the following table. Assume a rate of return of 12%. Find the IRR and NPV of each machine. Which machine should Biotech buy? Do the machines have a unique IRR? Justify your answers.

Time	Year 0	Year 1	Year 2	Year 3	Year 4
Machine 1	-150	20	130	50	26
Machine 2	-90	-90	200	36	36

Solutions

Expert Solution

EXCEL FORMULA:

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

A company is considering buying an automatic machine for a certain process. The machine has an...

A company is considering buying an automatic machine for a certain process. The machine has an initial cost of 23,000, a residual value of 4,000 and a useful life of 10 years. The production of this machine is 8 tons per hour. You need an operator that makes $ 12.00 per hour. The annual cost of operation and maintenance is 3,500 As a second alternative you can buy a small machine for 8,000 that has a residual value of 0...

A company is considering buying a new bottle-capping machine. The initial cost of the machine is...

A company is considering buying a new bottle-capping machine. The initial cost of the machine is $325,000 and it has a 10-year life. Monthly maintenance costs are expected to be $1200 per month for the first 7 years and $2000 per month for the remaining years. The machine requires a major overhaul costing $55,000 at the end of the 5th year of service. Assume that all these costs occur at the end of the appropriate period. What is the future...

A company is considering buying a CNC machine. In today's dollars, it is estimated that the...

A company is considering buying a CNC machine. In today's dollars, it is estimated that the maintenance costs for the machine (paid at the end of each year) will be $30,000, $32,000, $34,000, $36,000, and $38,000 for years 1 to 5, respectively. The general inflation rate ( f ) is estimated to be 7% per year, and the company will receive 15% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for...

A company is considering buying a CNC machine. In today's dollars, it is estimated that the...

A company is considering buying a CNC machine. In today's dollars, it is estimated that the maintenance costs for the machine (paid at the end of each year) will be $31,000, $32,000, $35,000, $36,000, and $38,000 for years 1 to 5, respectively. The general inflation rate ( f ) is estimated to be 6% per year, and the company will receive 15% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for...

ABC Corp is considering buying a new machine for $440,000. The new machine has an 8-year...

ABC Corp is considering buying a new machine for $440,000. The new machine has an 8-year life. Assume straight-line depreciation. The new machine will allow ABC to save $74,000/year. ABC will sell an old machine for $52,000. The sale will take place on the same day the new machine is bought. The old machine has an NBV = 18,000. Two years remain on the old machines' depreciable life. The new machine will require an overhaul in year 5 = $17,000....

For a new 5-year project, your company is considering buying new machine costing $1,000,000. The expected...

For a new 5-year project, your company is considering buying new machine costing $1,000,000. The expected salvage of the machine at the end of the project is $80,000. The marketing department has forecasted that the company will be able to sell 120,000 units of new product per year at $15 per unit. The production department has indicated that the variable cost per unit will be $6. The company has forecasted that the incremental fixed costs associated with the project are...

Company ABC acquired a machine at the beginning of the year. The machine had a 6-year...

Company ABC acquired a machine at the beginning of the year. The machine had a 6-year useful life. He expensed the entire acquisition cost in the current year. His error has what effect on current period net income (NI) and retained earnings at the end of the 4th year (RE4)? a. NI is understated; RE4 is understated b. NI is understated; RE4 is correct c. NI is overstated; RE4 is correct d. NI is overstated; RE4 is understated e. None...

Rex Berhad is considering buying a new production machine. The proposed machine would cost the company...

Rex Berhad is considering buying a new production machine. The proposed machine would cost the company RM85,000 and require an installation and modification cost of RM1,500 to be installed properly. In addition, the new machine would require an increase of inventory and account payable of RM 3 000 and RM1 700 respectively. The new machine will be depreciated over its five year life using the simplified straight line method. By using the new machine, sales is expected to increase by...

ABC company is considering buying a machine that costs $350,000. The company can finance the purchase...

ABC company is considering buying a machine that costs $350,000. The company can finance the purchase with a bank loan at 8%, with equal annual instalments over 10 years. The machine would have a salvage value of $25,000 at the end of 10 years. Alternatively, the machine could be leased, with 10 equal annual payments of $50,000, starting today. ABC's tax rate is 35%. The machine belongs to a CCA pool depreciating at 20%. ABC's cost of capital is 11%....

A company is considering buying a machine that would give a net cost savings of $70,000...

A company is considering buying a machine that would give a net cost savings of $70,000 per year for 10 years. The cost of the machine is $325,000. The company’s weighted average cost of capital is 12%. What is the difference between the IRR and the ARR?

Subjects