Problem
Bricks Company purchased a new machine with acquisition cost of $3.5 million and installation cost of $ 1 million. As a result of acquiring the machine, the expected incremental cash flows before taxes are as follows:
Year 1 $1,875,000
Year 2 $ 2,500,000
Year 3 $ 3,125,000
Year 4 $ 3,125,000
Year 5 $ 3,125,000
The expected incremental cash flows are subject to a tax rate of 20%. The company's cost of capital is 10%
Compute for the following:
a) Payback period
b) Net present value (NPV)
c) Internal rate of return (IRR)