You purchased a machine for $500,000 (installed), and you depreciated it using a

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You purchased a machine for $500,000 (installed), and you depreciated it using a 5 year MACRS. This machine generates $200,000 in annual revenue. In year 4, you sold the machine for $250,000. You received a loan for $400,000 on a 5 year loan at 5% (note, you must pay the remaining balance of this loan at the end of year 4 from the proceeds of the sale). In addition, you invested $80,000 in working capital initially. Your company is in a 35% tax bracket. What is your NPV(12%)? what is your IRR?

Please show work I actually want to learn how to do this

Explanation / Answer

Answer )

Step 1: Loan calculation

Repayment on annual basis for NPW calculation = 92390

Remaining loan at end of 4th year = $ 88,175.63

12.00%

As NPV is negative and to made it zero , IRR will be neagtive ,

so, this investment is infeasible at any rate of discounting .

Depreciation rate - 5 Year (MACRS) 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%

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