DEF Inc. plans to invest in a machinery costing $250,000. The machinery is expected to...
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Accounting
DEF Inc. plans to invest in a machinery costing $250,000. The machinery is expected to yield the following cash flows over its useful life of 6 years:
Year
Cash Flow
1
$70,000
2
$60,000
3
$50,000
4
$40,000
5
$30,000
6
$20,000
The machine has no salvage value, and the company uses straight-line depreciation. The corporate tax rate is 28%. Required:
a. Calculate the Payback Period and ARR b. Calculate NPV and PI, assuming a 10% discount rate c. Compute the IRR d. Determine the impact on NPV if the discount rate increases by 2%
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