Part One
The Henry Co. is considering the acquisition of a new, labor-saving machine for its factory. The capitalized cost of the machine is $1,000,000. The machine will provide positive cash flows of $152,000 per year for ten years. The company’s required rate of return is 8%. What is the NPV of this project?
Part Two
The Acme Co. is considering the acquisition of a product from the Wiley Coyote Co. The product is projected to have a seven-year product life cycle and provide the following cash flows:
Year one: $23,000
Year two: $28,000
Year three: $30,000
Year four: $28,000
Year five: $22,000
Year six: $20,000
Year seven: $15,000
The product will cost Acme $125,000 and the company has a 9% WACC. What is the IRR on this project?
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