The A.M.I. Company is considering installing a new process machine for the firm's manufacturing facility. The machine

Question:

The A.M.I. Company is considering installing a new process machine for the firm's manufacturing facility. The machine costs $220,000 installed, will generate additional revenues of $85,000 per year, and will save $65,000 per year in labor and material costs. The machine will be financed by a $120,000 bank loan repayable in three equal annual principal installments, plus 9% interest on the outstanding balance. The machine will be depreciated using seven-year MACRS. The useful life of the machine is 10 years, after which it will be sold for $20,000. The combined marginal tax rate is 40%.
(a) Find the year-by-year after-tax cash flow for the project.
(b) Compute the IRR for this investment.
(c) At = 18%, is the project economically justifiable? MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...