Question

The AMI Company is considering installing a new processing machine for the firm’s manufacturing facility. The machine costs $220,000 installed, will generate additional revenues of $85,00, and will save $65,000 per year in labor and material costs. The machine will be financed, in part, by a $120,000 bank loans repayable in three equal annual principal installments, plus 9% interest on outstanding balance. The machine will be depreciated using seven-year MACRS (under which, the depreciation rate is 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.93%, 8.93%, and 4.46% for years 1-8). The useful life of the machine is 10 years, after which it will be sold for $20,000. The combined marginal tax rate is 25%.

1. Find the year-by-year after-tax cash flow for the project (you need to do this in excel, for 10 years plus year 0) (please attach your excel sheet as your answer)
2. Compute the NPW (using MARR at 15%) for this investment
3. Compute the IRR for this investment

Answer 1