Calculate the projects NPV-IRR-MIRR and Payback
Financial Management
Madison manufacturing is considering a new machine that costs $350,000 and would reduce pre tax manufacturing costs by $110,000 annually. Madison would use the 3 year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5 year operating life. The applicable depreciation rates are 33.33%, 14.81%, and 7.42%, as discussed in Appendix 11A. Working capital would increase by $35,000 at the end of the projects 5 year life. Madison’s marginal tax rate is 40%, and a 10% WACC is appropriate for the project.
Scenario Probability Cost Savings Salvage Value WC
Worst Case .35 $88,000 $28,000 $40,000
Base Case .35 $110,000 $33,000 $35,000
Best Case .30 $132,000 $38,000 $30,000
Calculate the projects NPV, its standard deviation, and it’s coefficient of variation. Would you recommend that the project be accepted?
Please show work in excel with formulas / explanations as necessary.