Calculate the IRR for the following proposal: Machine cost $4,500,000 Set up cost $30,000 Training cost...

Calculate the IRR for the following proposal:

Machine cost	$4,500,000
Set up cost	$30,000
Training cost	$30,000
Annual maintenance cost	$15,000
Anticipated annual savings	$477,000
Annual labor savings	$40,000
Useful life in years	8
Overhaul cost in year 4	$30,000
Annual operating cost	$27,000
Hurdle rate	8%
Salvage value	$50,000
Depreciation method	straight line

Solutions

Expert Solution


Calculation of IRR of the proposal
Year	0	1	2	3	4	5	6	7	8	IRR
Machine Cost	-$4,500,000.00
Setup cost	-$30,000.00
Training cost	-$30,000.00
Maintenance cost		-$15,000.00	-$15,000.00	-$15,000.00	-$15,000.00	-$15,000.00	-$15,000.00	-$15,000.00	-$15,000.00
Savings		$477,000.00	$477,000.00	$477,000.00	$477,000.00	$477,000.00	$477,000.00	$477,000.00	$477,000.00
Labor savings		$40,000.00	$40,000.00	$40,000.00	$40,000.00	$40,000.00	$40,000.00	$40,000.00	$40,000.00
Overhaul cost					-$30,000.00
Operating cost		-$27,000.00	-$27,000.00	-$27,000.00	-$27,000.00	-$27,000.00	-$27,000.00	-$27,000.00	-$27,000.00
Salvage value									$50,000.00
Net Cash flow	-$4,560,000.00	$475,000.00	$475,000.00	$475,000.00	$445,000.00	$475,000.00	$475,000.00	$475,000.00	$525,000.00	-3.73%

IRR of the proposal =	-3.73%

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

1. a. Calculate the IRR for the following project if its cost was $5,000 and the...

1. a. Calculate the IRR for the following project if its cost was $5,000 and the annual expenditures and costs were: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 2,000 2,000 2,000 2,000 -1,000 -1,000 b. Assume a firm's WACC is 10 percent. Calculate the NPV for the following project if its cost was $5,000 and the annual expenditures and costs were: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 2,000 2,000...

Set up an amortization schedule a $30,000 loan to be repaid in equal installments at the...

Set up an amortization schedule a $30,000 loan to be repaid in equal installments at the next 3 years. The interest rate is 8% compounded semiannually a) amortize loan with fixed principal payment b) amortized loan with fixed payment

Set up an amortization schedule for a $30,000 loan to be repaid in equal instalments at...

Set up an amortization schedule for a $30,000 loan to be repaid in equal instalments at the end of each of the next 3 years. The interest rate is 3 percent, compounded annually. A. What percentage of the payment represents interest payment and what percentage of the payment represents principal payment for each of the 3 years?B.Why do these percentages change over time?

Set up an amortization schedule for a $30,000 loan to be repaid in equal installments at...

Set up an amortization schedule for a $30,000 loan to be repaid in equal installments at the end of each of the next 20 years at an interest rate of 10 percent. What is the annual payment?

Given the following information, calculate the Payback for a capital budget proposal. Show your work. Machine...

Given the following information, calculate the Payback for a capital budget proposal. Show your work. Machine Cost: $6,000,000 Salvage Value: $50,000 Setup Costs: $45,000 Training Costs: $25,000 Annual maintenance costs: $45,000 Anticipated annual savings: $560,000 Annual labor savings: $25,000 Expected useful life in years: 12 Overhaul costs in year 4: $50,000 Annual operating costs: $25,000 Hurdle rate: 8%

If a production machine costs $18,000, and we are able to set up the following payment...

If a production machine costs $18,000, and we are able to set up the following payment arrangements with the bank: Number of payments = 4 (one at the end of each year) Interest Rate = 5% Amount of each annual payment = $5,000 Questions: 1. What is the present value of the stream of cash flows (the series of payments)? 2. Will we be provided with enough purchasing power at the present time to be able to purchase the machine?...

Payback Period and IRR of a Cost Reduction Proposal-Differential Analysis A light-emitting diode (LED) is a...

Payback Period and IRR of a Cost Reduction Proposal-Differential Analysis A light-emitting diode (LED) is a semiconductor diode that emits narrow-spectrum light. Although relatively expensive when compared to incandescent bulbs, they use significantly less energy and last six to ten times longer, with a slow decline in performance rather than an abrupt failure. Metropolitan City currently has 80,000 incandescent bulbs in traffic lights at approximately 12,000 intersections. It is estimated that replacing all the incandescent bulbs with LED will cost...

Loan of EGP 30,000 is taken out. A sinking fund is set up to pay back...

Loan of EGP 30,000 is taken out. A sinking fund is set up to pay back the EGP 30,000 in one lump sum at the end of 5 years. The sinking fund earns j4 = 4% and deposits are made Quarterly. Find the book value of the debt after 3 years.

IBM is interested in acquiring some new equipment. Machine A costs $30,000 up front and will...

IBM is interested in acquiring some new equipment. Machine A costs $30,000 up front and will last 5 years. It costs $4000 per year to run. Machine B costs $15,000 up front and will last 2 years. B costs $6000 per year to run. IBM plans to replace the equipment as needed. The 2 machines perform the same function. The interest rate is 12%. Which machine should they choose? And why?

Resistors for electronic circuits are manufactured on a high-speed automated machine. The machine is set up...

Resistors for electronic circuits are manufactured on a high-speed automated machine. The machine is set up to produce a large run of resistors of 1,000 ohms each. Use Exhibit 10.13. To set up the machine and to create a control chart to be used throughout the run, 15 samples were taken with four resistors in each sample. The complete list of samples and their measured values are as follows: Use three-sigma control limits. *ONLY ANSWER b,c,d, e please. Thank you!*...

Subjects