If you buy the new machine you will be able to sell the existing machine for $6,000. The new machine will cost $10,000 for delivery and installation, on top of the purchase price. Making your product more quickly is important because you currently cannot meet the demands of your orders. You are currently selling every widget you produce. The machine will cost $100,000 today and will require annual maintenance of $5,000 each year (except for the final year), starting at the end of the first year. You expect that your machine will last for 8 years before you need to purchase the next machine. At that time, you expect you will be able to sell the machine for $7,800. You can buy the machine now and have it delivered and installed by tomorrow. You expect that you will sell 2,000 more widgets in year 1 and that this number will increase by 20% each year for the next 4 years after that before leveling off at that level of sales for the remaining years you own the machine. You can obtain more inventory immediately so you can put the machine to use right away. The cost of producing each widget is $12.50. You can sell each widget for $19.80 each. If your goal is to make 10% each year on every investment and project that your company accepts, should you purchase the current machine using the costs and estimates provided above? What is the NPV of the machine? What is the IRR of the machine? Should you accept this project (buying the machine) based on IRR and NPV estimates? Do not worry about depreciation or taxes. Just focus on the cash flows as shown above. Also, assume that all cash flows, except the initial cash flow, occur at the end of each year, including all expenses and income. Use Excel (save as xls or xlsx file and submit through Canvas) to show your work for this and submit your project before the due date using the link in Canvas.
If you buy the new machine you will be able to sell the existing machine for $6,000. The new machine will cost $10,000 for delivery and installation, on top of the purchase price. Making your product more quickly is important because you currently cannot meet the demands of your orders. You are currently selling every widget you produce. The machine will cost $100,000 today and will require annual maintenance of $5,000 each year (except for the final year), starting at the end of the first year. You expect that your machine will last for 8 years before you need to purchase the next machine. At that time, you expect you will be able to sell the machine for $7,800. You can buy the machine now and have it delivered and installed by tomorrow. You expect that you will sell 2,000 more widgets in year 1 and that this number will increase by 20% each year for the next 4 years after that before leveling off at that level of sales for the remaining years you own the machine. You can obtain more inventory immediately so you can put the machine to use right away. The cost of producing each widget is $12.50. You can sell each widget for $19.80 each.
If your goal is to make 10% each year on every investment and project that your company accepts, should you purchase the current machine using the costs and estimates provided above? What is the
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