24 Jul WHAT WOULD BE THE ANNUAL AFTER TAX NET CASH FLOW?
A company is considering rhe replacement of a piece of machinery for a newer model. The new model wi Show more A company is considering rhe replacement of a piece of machinery for a newer model. The new model will cost $1100000 installed. It has a useful life of 10 years with no salvage value. It is expected to allow the company to generate $25000 in new revenue per year from the sale of its products. It is hoped that it will save the company $200000 a year in material and energy cost (excluding depreciation). The firm uses straight line depreciation (which acts as a tax shield). The corporate tax rate is 20%. 1) What would be the annual after tax net cash flow? ___________________________ A member of management has asked you to submit a proposal for the replacement of the old equipment (described above). They have reworked the revenue and expense savings assumptions and determined that the revised after tax cash flows is expected to be $235000 per year. They want you to use this new assumption to calculate the payback period Net Present Value and the Internal Rate of Return. You have been advised that the project is deemed to be a low to moderate risk. Therefore it would have a risk adjusted average cost of capital of 10%. If it would have been deemed a high risk project he would have suggested using 17%. 2) What is the payback period ? ___________________ (round to 1 decimal place) 3) What is the projects Net Present Value?_________________ 4) What is the projects Internal Rate of Return? _____________________________ 5) If this project had been deemed High Risk instead of low risk. what would the Net Present Value have been? _______________ Show less
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