Axel Corporation is planning to buy a new machine that will reduce the amount of water used in its manufacturing process by filtering and recycling the water. The company’s required rate of return for equipment investment is 16%. The machine costs $150,000 and should save about $30,000 per year in water costs. The vendor stated that the equipment should last 10 years. Ignore taxes and inflation.

A. What is the NPV for this project? Based on the NPV, should Axel make the purchase?
B. What is the internal rate of return (IRR) for this project?
C. What is the payback period?
D. What qualitative factors, including strategic risks, might affect this decision?

  • CreatedJanuary 26, 2015
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