Based on NPV AND IRR, MACHINE B SHOULD BE CHOSEN AS IT HAVE
A POSITIVE NPV AND IRR HIGHER THAN COST OF CAPITAL
, Given:
Selling Price per Unit: 85
Variable Cost per Unit: 38
Units Sold per Year 70000
Annual Reduction in Production
Costs: 180000
Tax Rate: 28%
3.1)
Proceeds from the sale of current
equipment
Market value of current equipmenT 410000
Tax value of current equipment -300000
Capital gain 110000
Capital gains tax @28 30800
Proceeds from the sale(Market value -
Tax payable) 379200
3.2)
Initial investment
Cost of new equipment: 8500000
Proceeds from sale of old
equipment: -379200
Investment in net working capital:
475000
8595800
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