Use NPV and IRR analysis to decide whether ToysRus should purchase a new molding machine that costs $127,000. Information about the project:
– Installation will cost $20,000.
– $4,000 in net working capital will be needed at the time of installation.
– The project will increase revenues by $85,000 per year, but operating costs will increase by 35% of the revenue increase.
– Simplified straight line depreciation is used.
– Class life is 5 years, and the firm is planning to keep the project for 5 years.
– Salvage value at year 5 will be $50,000.
– Firms with similar risk as ToysRushave required return of 14%.
– 34% marginal tax rate.
Find Initial Outlay, Annual Cash flows, Terminal Cash flows using their formulas.