Existing equipment from a company could be sold for $50,000 after taxes. As of today, management forecasts call for after-tax cash flows of $15,000 next year if the current machinery is retained. The cash flows are expected to increase at a rate of 6% per year for the next five years. The new machinery under consideration has a price of $70,000. It would be expected to produce cash flows of $20,000 next year, and the cash flows would grow by 8% per year for the next five years.
a. Calculate the net present value, IRR, and MIRR of the existing equipment.
b. Calculate the net present value, IRR and MIRR of the new equipment.