Madison Manufacturing is considering a new machine that costs $250,000 and wouldreduce pre-tax manufacturing costs by $90,000 annually. Madison would use the3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. Theapplicable depreciation rates are 33%, 45%, 15%, and 7%, as discussed in Appendix11A. Working capital would increase by $25,000 initially, but it would be recoveredat the end of the project’s 5-year life. Madison’s marginal tax rate is 40%, and a 10%WACC is appropriate for the project.a. Calculate the project’s NPV, IRR, MIRR, and payback
Madison Manufacturing is considering a new machine that costs $250,000 and wouldreduce pre-tax manufacturing costs by $90,000 annually. Madison would use the3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. Theapplicable depreciation rates are 33%, 45%, 15%, and 7%, as discussed in Appendix11A. Working capital would increase by $25,000 initially, but it would be recoveredat the end of the project’s 5-year life. Madison’s marginal tax rate is 40%, and a 10%WACC is appropriate for the project.a. Calculate the project’s NPV, IRR, MIRR, and payback
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 4P
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Madison Manufacturing is considering a new machine that costs $250,000 and wouldreduce pre-tax manufacturing costs by $90,000 annually. Madison would use the3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. Theapplicable depreciation rates are 33%, 45%, 15%, and 7%, as discussed in Appendix11A. Working capital would increase by $25,000 initially, but it would be recoveredat the end of the project’s 5-year life. Madison’s marginal tax rate is 40%, and a 10%WACC is appropriate for the project.a. Calculate the project’s NPV, IRR, MIRR, and payback
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