Burton, a manufacturer of snowboards, is considering adding a more sophisticated machine. The following information is given.
The proposed machine will cost $120,000 and have installation costs of $15,000. It will be depreciated using a 5 year MACRS recovery schedule. It can be sold for $10,000 after five years of use (at the end of year 5).
The incremental earnings before taxes and depreciation (EBITDA) are projected to be:
Year 1: 43,000, Year 2: 45,000, Year 3: 46,000, Year 4: 49,000, Year 5: 53,000
Burton pays 34 percent taxes on ordinary income and capital gains.
They expect a large increase in sales so their Net Working Capital will increase by $20,000.
The maximum payback period allowed is 4 years.
They are currently using a WACC of 14% to evaluate investment projects.
a. Determine the incremental after-tax operating cash flows
b. calculate the MIRR
Please show work