Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $25,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Net operating working capital would increase by $25,000 initially, but it would be recovered at the end of the project's 5-year life. Holmes's marginal tax rate is 40%, and a 13% WACC is appropriate for the project. a. Calculate the project's NPV. Round your answer to the nearest cent. b. Calculate the project's IRR. Round your answer to two decimal places.
Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce
pre-tax
method to depreciate the machine, and management thinks the machine would have a
value of $25,000 at the end of its 5-year operating life. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. Net operating working capital would increase by $25,000
initially, but it would be recovered at the end of the project's 5-year life. Holmes's
marginal tax rate is 40%, and a 13% WACC is appropriate for the project.
a. Calculate the project's NPV. Round your answer to the nearest cent.
b. Calculate the project's
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