Corporate FInance Assignment/ Professional Essay Writers
May 16th, 2020
The company “ABCD” is considering to make a new investment by purchasing a new machine for the production of a new product. For the new machine, “ABCD” must spend 6,000 euros, which will be sold after six years. Each year, the machine has 200 euros in operating costs. The beneficial/useful life span of the machine is 6 years and it’s residual (salvage) value is zero.
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| YEAR | INCOME THE MACHINE GENERATES (in euros) |
| 1 | 800 |
| 2 | 1,200 |
| 3 | 1,800 |
| 4 | 2,700 |
| 5 | 3,000 |
| 6 | 1,500 |
| TOTAL | 11,000 |
In addition, the corporate tax rate is 40%. the capital cost factor is 8% and the company applies the straight-line method in calculating depreciation.
Evaluate the investment by using:
a) net present value (NPV) method
b) internal rate of return (IRR) method
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