Cost of new machinery | $200,000 |
Machinery estimated useful life | 10 years |
Estimated salvage value | $0 |
Straight-line depreciation | |
Annual labor hours reduction | 10,000 |
Annual operating costs reduction | $4,000 |
Average hourly labor rate | $5.50 |
Income tax rate | 40% |
Discount rate | 10% |
Part 1: Calculate the annual incremental income after taxes and the annual net cash flow for each year
Part 2: Calculate the payback period
Part 3: Calculate the rate of return on average investment
Part 4: Calculate the net present value
Part 5: Calculate the internal rate of return
Part 6: Calculate the profitability index
Please show formulas!
Note:
Internal Rate of Return is computed using extrapolation method. To find the IRR accurately, excel function IRR can be used as = IRR(-initial investment, cash flow in year 1, ...., cash flow in year 10) which will be 17.30%
Cost of new machinery $200,000 Machinery estimated useful life 10 years Estimated salvage value $0 Straight-line...
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