This project contains two tasks 1. Find NPV and IRR for the project 2. Do sensitivity ananlysis to see how NPV(or IRR) changes witht the changes in one chosen variable. A firm is trying to decide whether to use a new machine to replace the old one . The information of the costs and savings associated with the project are as follows: New machine cost 150000 Old machine dep 9000 Current book value of old machine 55000 Salvage value of old machine today 65000 Salvage value of old machine in 5 years 10000 Annual cost saving assoiciated with the new machine 50000 Cost of capital 0.1 Tax rate 0.4 The new machine follows 3year MACRS deprecation 0 1 2 3 4 5 MACRS deprecation schedule 0.3333 0.4445 0.1481 0.741 0 1.

Use the following table to estimate NPV and IRR (5 points) Cost saving Depreciation Old New Incremental OCF Capital expenditure After-tax salvage today After-tax salvage in 5 years CFFA NPV IRR

2. Sensitivity analysis (3 points)