King's Department Store is contemplating the purchase of a new machine at a cost of $27,653. The machine will provide $4,500 per year in cash flow for ten years. King's has a cost of capital of 12 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.
a. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. Should the project be undertaken?
Yes
No
c. Firm X is considering the replacement of an old machine with one that has a purchase price of $70,000. The current market value of the old machine is $18,000 but the book value is $32,000. The firm's tax rate is 30%. What is the net cash outflow for the new machine after considering the sale of the old machine? Disregard the effect of depreciation of the new machine if acquired.
70,000
$47,800
$52,000
$40,100
d. The Wet Corp. has an investment project that will reduce expenses by $20,000 per year for 3 years. The project's cost is $30,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's tax rate is 31%, what is the cash flow from the project in year 1? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)
$16,900
$16,350
$18,360
$17,680
e. Technology Corp. is considering a $238,160 investment in a new marketing campaign that it anticipates will provide annual cash flows of $52,000 for the next five years. The firm has a 6% cost of capital. What should the analysis indicate to the firm's managers?
IRR is 3%. Reject the project.
IRR is 6%. Accept the project.
IRR is 4%. Reject the project.
IRR is 8%. Accept the project.