Finance Assignment

Questions: Calculate the Net Present Value and Internal Rate of Return relative to the purchase of a new widget making machine. Machinecost $3,400,000 Useful life: 7 years For tax purposes a 30 per cent reducing balance depreciation would be used. Maintenance cost per annum: $75,000. Maintenance technician salary per annum: $125,000 Operators salary: $90,000, plus 35 per cent on-costs. Restructuring cost (First year only): $180,000. Employee training costs are projected as follows: First Yearà ¢Ã¢â€š ¬Ã¢â‚¬ ¹Ãƒ ¢Ã¢â€š ¬Ã¢â‚¬ ¹$35,000 Second Yearà ¢Ã¢â€š ¬Ã¢â‚¬ ¹Ãƒ ¢Ã¢â€š ¬Ã¢â‚¬ ¹$25,000 Third Yearà ¢Ã¢â€š ¬Ã¢â‚¬ ¹Ãƒ ¢Ã¢â€š ¬Ã¢â‚¬ ¹$10,000 Increase in working capital required: $60,000. Salvage value: $75,000. Manufacturing cost savings per annum: $1,200,000. Sale of now obsolete equipment over the next two years. Answers: Calculation for Depreciation Present Value Depreciation Amount Value After Depreciation $ 3,400,000.00 $ 1,020,000.00 $ 2,380,000.00 $ 2,380,000.00 $ 714,000.00 $ 1,666,000.00 $ 1,666,000.00 $ 499,800.00 $ 1,166,200.00 $ 1,166,200.00 $ 349,860.00 $ 816,340.00 $ 816,340.00 $ 244,902.00 $ 571,438.00 $ 571,438.00 $ 171,431.40 $ 400,006.60 $ 400,006.60 $ 120,001.98 $ 280,004.62 For the Cash Flow Series NPV= $-1,661,329.48 IRR = 0% Cash Flow Stream Detail Period Cash Flow Present Value 0 -3,400,000.00 -3,400,000.00 1 -416,500.00 -378,636.36 2 139,500.00 115,289.26 3 368,700.00 277,009.77 4 528,640.00 361,068.23 5 633,598.00 393,414.51 6 707,069.00 399,122.02 7 1,113,503.00 571,403.10 NPV -1,661,329.48 IRR 0%