Estimated IRR of the Project.
The Campbell Golf Company is considering the addition of a computerized robot to its equipment. The initial cost of the equipment is $750,000, and the robot is expected to have a useful life of five years and no salvage value. The cost savings and increased capacity attributable to the machine are estimated to generate increases in the firm's annual cash inflows (before considering depreciation) of $200,000. The machine will be depreciated as follows for tax purposes: $200,000 in year 1, $266,700 in year 2, $150.000 in year 3, $88,860 in year 4, and $44,440 in year 5.
Campbell is currently in the 30% income tax bracket. A 14% after-tax rate of return is desired.
A. What is the net present value of the investment? Round to the nearest dollar.
B. Should the robot be acquired by the firm? Explain.
C. What is the estimated Internal Rate of Return IRR on this proposed investment?