Calculate the Net Present Value and Internal Rate of Return relative to the purchase of a new widget making machine.
- Machinecost $3,400,000
- Useful life: 7 years
- For tax purposes a 30 percent reducing balance depreciation would be used.
- Maintenance cost per annum: $75,000.
- Maintenance technician salary per annum: $125,000
- Operator's salary: $90,000, plus 35 per cent on-costs.
- Restructuring cost (First year only): $180,000.
- Employee training costs are projected as follows:
First Year $35,000
Second Year $25,000
Third Year $10,000
- Increase in working capital required: $60,000.
- Salvage value: $75,000.
- Manufacturing cost savings per annum: $1,200,000.
- Sale of now obsolete equipment over the next two years.
|
Sale of Equipment
|
Year 1
|
Year 2
|
|
Acquisition Cost
|
$170,000
|
$ 305,000
|
|
Accum Depredation
|
$100,000
|
$ 215,000
|
|
Sale Proceeds
|
$ 30,000
|
$ 140,000
|
o Company cost of capital: 10%
o Tax rate: 30%.