Problem:
Suppose John's Hardware is considering the introduction of a new, more advanced drill. The new drill will cost $490,000. The cost will be depreciated straight-line to zero over the projects five-year life, at the end of which the new drill can be scrapped for $40,000. The new drill will save the firm $146,000 per year in pretax operating costs, and it required an initial investment in net working capital of $35,000. The tax rate of the firm is 30%.
Required:
Question 1: What are the cash flows of firms new project (using a time line)?
Question 2: What is the net present value of this project (list your setups)?
Question 3: What is the IRR of this project (list your setups)?
Note: Explain all steps comprehensively.