Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
Bartleby Related Questions Icon

Related questions

Question
Please correct answer and don't use hand rating
You are evaluating two different machines.
The Alpha 1 has an initial cost of $450,000 with a five-year life that will be depreciated down
to zero using the straight-line method. The machine is expected to save the company $125,00
0 in operating costs (pre-tax) each year it is in operation. Assume the machine can be sold for
$25,000 at the end of its useful life. The Alpha 2 costs $350,000, has a seven-year life that will
be depreciated down to zero using straight-line method. Alpha 2 will only save the company $
75,000 per year (before taxes) but will have a salvage value of $35,000 at the end of its life. If
your tax rate is 23 percent and your discount rate is 9 percent, compute the NPV and IRR for
both machines.
Which do you prefer?
expand button
Transcribed Image Text:You are evaluating two different machines. The Alpha 1 has an initial cost of $450,000 with a five-year life that will be depreciated down to zero using the straight-line method. The machine is expected to save the company $125,00 0 in operating costs (pre-tax) each year it is in operation. Assume the machine can be sold for $25,000 at the end of its useful life. The Alpha 2 costs $350,000, has a seven-year life that will be depreciated down to zero using straight-line method. Alpha 2 will only save the company $ 75,000 per year (before taxes) but will have a salvage value of $35,000 at the end of its life. If your tax rate is 23 percent and your discount rate is 9 percent, compute the NPV and IRR for both machines. Which do you prefer?
Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Text book image
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:9781260013962
Author:BREALEY
Publisher:RENT MCG
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage
Text book image
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Text book image
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Text book image
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education