A company is evaluating a machine for possible purchase. The estimated price of the machine is $400,000 and an additional $50,000 will be needed for shipping, installing, and getting the machine ready for use. The machine will be depreciated according to the 5-year MACRS class though the company plans to use it for only 3 years. The depreciation rates by year are provided below. The estimated selling price of the machine after the 3 years is $250,000.

If purchased, this machine will necessitate an initial increase in net working capital of $30,000 which is expected to be recovered when the machine is sold. The firm estimates that the acquisition of this machine will boost overall revenue by $145,000 for each year. The new machine is expected to increase operating costs (other than depreciation) by $22,000 for each year. The companys applicable tax rate is 21%. The firms cost of capital is 8%. Estimate the NPV & IRR of this machine, and comment on whether or not the company should invest in it.

MACRS Depreciation Rates for the 5-year Class:-

Year Dep. %

1 20

2 32

3 19.20

4 11.52

5 11.52

6 5.76