Question

#6

machine will generate additional annual revenue of $8 million and additional annual costs and expenses of $4 million. The machine has a 5 year life and will be depreciated using straight line depreciation. The salvage value of the machine for depreciation purposes is $3 million. It is estimated the machine can be sold after 5 years for $4 million (tax rate is 40%). The company WACC is 8%. (5) What is the MIRR given cash flows of: -300; -200; -50; 400; 500; 600. WACC = 11% Calculate the Payback Period, IRR, NPV, and PI if cash flows are as follows:-$2M; $720K; $840K; $860K: and $620K. (WACC is 11%) (7Calculate the NPV, IRR, and Payback Period for the following informatia A machine is purchased for $16 million with $2 million modification cost and million shipping cost. Net operating working capital of $4 million is needed. machine will generate additional annual revenue of $12 million and additional annual costs and expenses of $7 million. The machine has a 5 year life and w depreciated using straight line depreciation. The salvage value of the machin acas is $3 million. It is estimated the machine can be sold a

Answer 1

Q6) payback period

Years	Cashflow	Cummulative Cashflow
0	(-2,000,000)	(-2,000,000)
1	720,000	(-1,280,000)
2	840,000	(-440,000)
3	860,000	420,000
4	620,000	1,040,000

Payback period = full year until recovery + unrecovered cost at the beginning of last year/cashflow during last year

= 2 + 440,000/860,000

= 2 + 0.51

= 2.51 years

•Finding IRR

We use financial calculator to find Irr

Inputs : C0 = - 2,000,000

C1 = 720,000. Frequency =1

C2 = 840,000. Frequency =1

C3 = 860,000. Frequency =1

C4 = 620,000. Frequency =1

IRR = Compute

We get, Irr = 19.47%

•Finding NPV

We use financial calculator to find Npv

Inputs: C0 = -2,000,000

C1 = 720,000. Frequency =1

C2 = 840,000. Frequency =1

C3 = 860,000. Frequency =1

C4 = 620,000. Frequency = 1

I = 11%

NPV = Compute

We get , NPV = 367,649.28

• Finding Profitability index

PI = Cash outflow + Npv / initial outflow

= 2,000,000 + 367,649.28 / 2,000,000

= 2,367,659.28 / 2,000,000

= 1.18