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XYZ wants to buy a new production machine for $20,000. Projected cash flows (alr

ID: 2711618 • Letter: X

Question

XYZ wants to buy a new production machine for $20,000. Projected cash flows (already adjusted) from this investmentwill be 5,000; 4,000; 6,000; 6,000, and 6,000. The residual value of the machine is 500$, and t he company will receive the IRS ITC for buying the new capital equipment. The machine will require some maintenence in year 2 for $1000 and the company can borrow from its bank at prime plus 5 3/4. Is this a good investment? Regardless of your answer to this question, what is the IRR of this project?

Explanation / Answer

Answer:

Intial cost -20000 Project cash flows 5000 3000 6000 6000 6500 IRR 9.39%

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