Quinn Industries is considering the purchase of a machine that would cost $420,0
ID: 2458489 • Letter: Q
Question
Quinn Industries is considering the purchase of a machine that would cost $420,000 and would last for 10 years. At the end of 10 years, the machine would have a salvage value of $97,000. The machine would reduce labor and other costs by $82,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.)
19.
Required information
Compute the net present value of the project by inputting the variables that are entered into your calculator / Excel. (If a variable is not used in the calculation, input a zero (0). Omit the "$" and "%" signs in your response.) Round your answer to the nearest dollar and use a minus sign for negative numbers.
Excel / calculator input:
Nper, N
PMT
PV
Compute the internal rate of return of the project by inputting the variables that are entered into your calculator / Excel. (If a variable is not used in the calculation, input a zero (0). Omit the "$" and "%" signs in your response.) Round your answer to one decimal place and use a minus sign for negative numbers.
Excel / calculator input:
Nper, N
Quinn Industries is considering the purchase of a machine that would cost $420,000 and would last for 10 years. At the end of 10 years, the machine would have a salvage value of $97,000. The machine would reduce labor and other costs by $82,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.)
Explanation / Answer
Particulars Amount of Cash flow factor present value of cash flows
Annual cost Saving $82,000 5.2162 $427,728.40
Salvage Value $97,000 5.2162 $505,971.40
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Annual cash inflow with factor = $933,700
Less
Cash outflow $420,000 * 1.0000= $420,000
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NPV= $513,700
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Compute the internal rate of return
Initial Investment / CFAT
=$420,000 / $82,000
= 5.122 is nearest to 5.1183 it is found in 17% row so IRR is 17%
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