Question 1:
ABC Steel Co. is considering to invest in a heavy-duty machine.
Details for the machine are as follows:
Initial Investment: $100,000
Cash Inflows for 5 years:
Year 1 $40,000
Year 2 $30,000
Year 3 $20,000
Year 4 $15,000
Year 5 $10,000
Salvage value of the machine after 5 years is $9,000.
ABC Steel Co. uses a discount factor of 10% Use NPV analysis and determine whether this investment proposal should be accepted.
PRESENT VALUE TABLE
PV factor 10% 12%
Year 1 0.909 0.893
Year 2 0.826 0.797
Year 3 0.751 0.712
Year 4 0.683 0.636
Year 5 0.621 0.567
Question 2:
An equipment costing $30,370 and yields cash inflow of $10,000 for the next 4 yrs. Calculate the Internal Rate of return (IRR) for this project. (10 marks)
PRESENT VALUE TABLE
PV factor 6% 8% 10% 12%
Year 4 3.465 3.312 3.170 3.037