Alvin Printing is considering new printing machine whose data are shown below. The equipment has...
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Alvin Printing is considering new printing machine whose data are shown below. The equipment has a 4-year tax life and would be fully depreciated by the straight-line method over 4 years, but it would have a positive pre-tax salvage value at the end of Year 4, when the project would be closed down. Also, additional net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's 4-year life. Calculate the project's NPV and IRR.
WACC
10.0%
Net investment in new printing machine
$120,000
Transportation and Insurance of new printing machine
$20,000
Training of staff on how to use the new printing machine
$5,000
Required net operating working capital
$10,000
Research and development of new product
$25,000
Annual sales revenues
$100,000
Annual operating costs (excl. depreciation)
$35,000
Expected pre-tax salvage value
$4,000
Tax rate
25.0%
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