Project Valuation Tools Problem

QUESTION

 1) Project Valuation Tools ProblemACME Company is interested in buying a new machine that costs $500,000. It is projected that sales for the first year will be $350,000 and will increase each year by 15%. Variable costs are estimated to be 60% of sales with a one time repair cost of $25,000 in year 4. The machine will have a useful life of 5 years, the tax rate = 33% and the discount rate is 10%. Using the valuation tools youve learned (payback, discounted payback, NPV, IRR, PI), recommend if the company should invest in this machine.2Valuation ProblemCalculate NPV and IRR for the following investment.Initial investment = $1,000,000 machine, the project term is 6 years, sales for year 1 are estimated to be $1,000,000, and will grow by 7.5% per year through year 5, sales for year 6 = $500,000, variable costs are estimated to be 30% of sales & fixed costs are 150,000 per year, at the end of year 6 the machinery will become obsolete and will be sold for $100,000, the machine is considered 7-year property under the MACRS rules, the companys tax rate is 40%, and the discount rate is 12%.

ANSWER

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