A.M.I. Company is considering installing a new process machine for the firms manufacturing

facility. The machine costs $200,000 installed, will generate additional

revenues of $80,000 per year, and will save $55,000 per year in labor and material

costs. The machine will be financed by a $150,000 bank loan repayable in three equal

annual principal installments, plus 9% interest on the outstanding balance. The machine

will be depreciated using 7-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 MARR = 18% is the project economically justifiable?