Question: Notational Inc. is considering installing a new server. The machine costs $100,000 and is expected to have a useful economic life of 8 years, after

Notational Inc. is considering installing a new server. The machine costs $100,000 and is expected to have a useful economic life of 8 years, after which it will have a book value of $0. In addition to the equipment costs, management expects installation costs of $10,000 and an initial outlay for net working capital of $12,000. The new server is expected to generate an additional $10,000 per year in earnings after tax over its useful life, but an additional $5,000 per year is required in net working capital. Net working capital will be recovered at the end of 8 years. Assume that National has a cost of capital of 10%. Calculate the NPV and IRR for this project.

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