a) Using the NPV analysis, advise Gustav whether he should purchase the new machine b) Using the IRR analysis, advise Gustav whether he should purchase the new machine Do you reach the same conclusion c) Are there any other factors Gustav should consider when making his decision Think about strategic, qualitative, and other non financial factors Find at least 3 d) Give a short recommendation for Gustav Be specific on how you reached your conclusion Old Machine Cash Flows Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Salvage Value of old Equipment 35000 5000 Annual Depreciation 6000 6000 6000 6000 6000 Annual Maintance 8000 8000 8000 8000 8000 Major Maintenance 30000 6000 Operating Income 30000 14000 14000 20000 14000 14000 Taxes (30 ) 9000 4200 4200 6000 4200 4200 NOPAT 21000 9800 9800 14000 9800 9800 Post Tax Operating Cash Flows 21000 3800 3800 8000 3800 3800 Post TaxCash Flows 56000 3800 3800 8000 3800 1200 New Machine Investment Increase Sales Labor Cost Saved Annual Deprecaiation Annual Maintance Operating Income Taxes (30 ) NOPAT Post Tax Operating Cash Flows Past TaxSale Value Post Tax Cash Flows Net Cash Flows NPV IRR 140000 7000 7000 7000 7000 7000 10000 10500 10750 11000 11250 14000 14000 14000 14000 14000 3000 4500 6000 7500 9000 1000 2250 3500 4750 300 675 1050 1425 700 1575 2450 3325 14000 13300 12425 11550 10675 63000 140000 14000 13300 12425 11550 73675 84000 17800 17100 20425 15350 72475 $10,942 45 16

Question

a) Using the NPV analysis, advise Gustav whether he should purchase the new machine  b) Using the IRR analysis, advise Gustav whether he should purchase the new machine  Do you reach the same conclusion  c) Are there any other factors Gustav should consider when making his decision  Think about strategic, qualitative, and other non financial factors  Find at least 3 d) Give a short recommendation for Gustav  Be specific on how you reached your conclusion   Old Machine Cash Flows Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Salvage Value of old Equipment  35000 5000 Annual Depreciation  6000  6000  6000  6000  6000 Annual Maintance  8000  8000  8000  8000  8000 Major Maintenance  30000  6000 Operating Income  30000  14000  14000  20000  14000  14000 Taxes (30 ) 9000 4200 4200 6000 4200 4200 NOPAT  21000  9800  9800  14000  9800  9800 Post Tax Operating Cash Flows  21000  3800  3800  8000  3800  3800 Post TaxCash Flows  56000  3800  3800  8000  3800 1200 New Machine Investment Increase Sales Labor Cost Saved Annual Deprecaiation Annual Maintance Operating Income Taxes (30 ) NOPAT Post Tax Operating Cash Flows Past TaxSale Value Post Tax Cash Flows Net Cash Flows NPV IRR  140000 7000 7000 7000 7000 7000 10000 10500 10750 11000 11250  14000  14000  14000  14000  14000  3000  4500  6000  7500  9000  1000  2250  3500  4750 300 675 1050 1425  700  1575  2450  3325 14000 13300 12425 11550 10675 63000  140000 14000 13300 12425 11550 73675  84000 17800 17100 20425 15350 72475 $10,942 45 16

SolutionInn · Accepted Answer

To evaluate the decision to replace the old machine with a new one we can use the net present value NPV method We will discount the cash flows at the ...

Question: a) Using the NPV analysis, advise Gustav whether he should purchase the new machine. b) Using the IRR analysis, advise Gustav whether he should purchase

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