AFTER TAX CASH FLOWS, PBP , RECOMMENDATION IF DISCOUNT RATE IS 10% AND IRR OF THE PROJECT.

QUESTION :

A machine can be purchased for $10,500, including transportation

charges, but installation costs will require $1,500 more. The

machine is expected to last four years and produce annual cash revenues

of $6,000. Annual cash operating expenses are expected to be

$2,000, with depreciation of $3,000 per year. The firm has a 30

percent tax rate. Determine the relevant after-tax cash flows and

prepare a cash flow schedule.

Use the information given above,  to do the following:

a. Calculate the payback period for the machine.

b. If the project’s cost of capital is 10 percent, would you

recommend buying the machine?

c Estimate the IRR for the machine.