Please show work: 1) Kingston Corp. is now considering a new machine that requir
ID: 2764281 • Letter: P
Question
Please show work: 1) Kingston Corp. is now considering a new machine that requires an initial investment of $480,000 installed and has a useful life of 8 years. The expected annual after tax cash flows for the machine are $89,000 for each of the 8 years and nothing thereafter. A) calculate net present value if required rate of return is 11% B) calculate IRR of project C) should kingston accept the project?Please show work: 1) Kingston Corp. is now considering a new machine that requires an initial investment of $480,000 installed and has a useful life of 8 years. The expected annual after tax cash flows for the machine are $89,000 for each of the 8 years and nothing thereafter. A) calculate net present value if required rate of return is 11% B) calculate IRR of project C) should kingston accept the project?
1) Kingston Corp. is now considering a new machine that requires an initial investment of $480,000 installed and has a useful life of 8 years. The expected annual after tax cash flows for the machine are $89,000 for each of the 8 years and nothing thereafter. A) calculate net present value if required rate of return is 11% B) calculate IRR of project C) should kingston accept the project?
Explanation / Answer
Details Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Initial Investment (480,000) Annual after tax cash flow 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 Net Cash flow (480,000) 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 PV factor @11% 1 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 PV of Cash Flows (480,000) 80,180 72,234 65,076 58,627 52,817 47,583 42,868 38,619 NPV = (21,995) IRR = 9.702% Details Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Initial Investment (480,000) Annual after tax cash flow 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 Net Cash flow (480,000) 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 PV factor @9.702% 1 0.912 0.831 0.757 0.690 0.629 0.574 0.523 0.477 PV of Cash Flows (480,000) 81,129 73,954 67,413 61,451 56,017 51,063 46,547 42,430 NPV = 4 As the NPV is negative and IRR is lower than required rate of return , the project cannot be accepted.