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Homework answers / question archive / Lugar Industries is considering an investment in a new machine with the following information: Use this information for the next 3 questions: Machine cost 250,000 Salvage value 50,000 Life 5 years Working Capital $0 (no working capital needed) Net operating expense savings: End of Year 1 $ 50,000 End of Year 2 $ 90,000 End of Year 3 $110,000 End of Year 4 $120,000 End of Year 5 $120,000 WACC 10% Tax rate 40% Assumed salvage value of the machine at end of 5 years is $50,000 (You will sell this machine at the end of the project for $50,000) If Lugar buys the machine, calculate the following answers
Lugar Industries is considering an investment in a new machine with the following information:
Use this information for the next 3 questions:
Machine cost 250,000
Salvage value 50,000
Life 5 years
Working Capital $0 (no working capital needed) Net operating expense savings:
End of Year 1 $ 50,000
End of Year 2 $ 90,000
End of Year 3 $110,000
End of Year 4 $120,000
End of Year 5 $120,000
WACC 10%
Tax rate 40%
Assumed salvage value of the machine at end of 5 years is $50,000 (You will sell this machine at the end of the project for $50,000)
If Lugar buys the machine, calculate the following answers. Remember to include the impact of depreciation, taxes, and salvage value.
Based on the information, the NPV of this project would be: (Round you answer to the nearest two decimal places.
Based on the above information, calculate the IRR.
Based on your calculations, should Lugar buy the machine?
NPV of the project = $57,069.56
IRR of the project = 17.23%
Since, the NPV is positive, so the Lugar should buy the machine.
