Andres Gimenez is considering purchasing the DoublePlay 3000 machine. The machine will costAhmed $100,000 and he estimates it will last two years after which he will sell the machine for$30,000.The machine is considered specialty equipment under MACRS depreciation and depreciatedover 4 years as shown below.The tax rate is 40%.RevenueFixed CostsSG&A expensesDepreciationIEBITTaxesYear 1 Year 2$125,000 $ 125,000$ 40,000 $ 40,00020,00020,00033,33344,450$ 31,667 $ 20,5508,22012,667Net Income$19,000 $ 12,3301. What is the net present value of the investment, assuming an interest rate of 10%?2. What is the internal rate of return of the investment?

Andres Gimenez is considering purchasing the DoublePlay 3000 machine. The machine will cost Ahmed $100,000 and he estimates it will last two years after which he will sell the machine for $30,000. The machine is considered specialty equipment under MACRS depreciation and depreciated over 4 years as shown below. The tax rate is 40%. I EBIT Taxes Year 1 $125,000 Year 2 $125,000 Revenue Fixed Costs $ 40,000 $40,000 SG&A expenses 20,000 Depreciation 33,333 20,000 44,450 $ 31,667 $ 20,550 12,667 8,220 Net Income $19,000 $12,330 1. What is the net present value of the investment, assuming an interest rate of 10% ? 2. What is the internal rate of return of the investment?

Andres Gimenez is considering purchasing the DoublePlay 3000 machine. The machine will cost Ahmed $100,000 and he estimates it will last two years after which he will sell the machine for $30,000. The machine is considered specialty equipment under MACRS depreciation and depreciated over 4 years as shown below. The tax rate is 40%. I EBIT Taxes Year 1 $125,000 Year 2 $125,000 Revenue Fixed Costs $ 40,000 $40,000 SG&A expenses 20,000 Depreciation 33,333 20,000 44,450 $ 31,667 $ 20,550 12,667 8,220 Net Income $19,000 $12,330 1. What is the net present value of the investment, assuming an interest rate of 10% ? 2. What is the internal rate of return of the investment?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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