Mars, Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $5,000 annually. Mars will use the MACRS (5-year class) method to depreciate the machine, and it expects to sell the machine at the end of its 5-year life for $10,000 (Rates are 0.20, 0.32, 0.19, 0.12, 0.11, 0.06, respectively). The firm expects to be able to REDUCE NET WORKING CAPITAL by $15,000 when the machine is installed. Mars’ marginal tax rate is 40 percent, and it uses a 12 percent cost of capital to evaluate projects of this nature. The machine’s net cost is $60,000. What is the book value of the machine at the end of Year 3? Hint: depreciation schedule needed.
What is the initial net cash flow of the machine (i.e. NCF at t = 0)?
a. -$60,000
b. -$45,000
c. -$75,000
d. None of the above
What is the final net cash flow at t = 5?
a. $5,640
b. $15,640
c. $13,080
d. -$1,920
e. None of the above
What is the NPV of the project?
What is the correct MIRR of the project?
a. 0%
b. –1.22%
c. –16.49%
d. 12%
e. None of the above