Company X is planning to add another project, which will generate $125,000 annual revenue for the...

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Company X is planning to add another project, which willgenerate $125,000 annual revenue for the company in the next 6years, with operating costs of $50,500 per year. To take this newproject, the company has to purchase a new equipment with a priceof $168,000 and add additional $40,000 in net working capital. Theequipment will be depreciated using 7-year MACRS depreciationmethod (7-year MACRS depreciation rates are showing below). Thecompany thinks the equipment could be sold out by the end of year 6for $20,000. With a tax rate of 35% and required return of 18%,should the company take this project or not? Why? (Please show bothNPV and IRR decisions). 7-year MACRS 1. 14.29% 2. 24.49% 3. 17.49%4. 12.49% 5. 8.93% 6. 8.92% 7. 8.93% 8. 4.46%

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NPV Time line 0 1 2 3 4 5 6 Cost of new machine 168000 Initial working capital 40000 Initial Investment outlay 208000 7 years MACR rate 1429 2449 1749 1249 893 892 1339 Sales 125000 125000 125000 125000 125000 125000 Profits Salesvariable cost 74500 74500 74500 74500 74500 74500 Depreciation Cost of machineMACR 240072 See Answer

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Company X is planning to add another project, which willgenerate $125,000 annual revenue for the company in the next 6years, with operating costs of $50,500 per year. To take this newproject, the company has to purchase a new equipment with a priceof $168,000 and add additional $40,000 in net working capital. Theequipment will be depreciated using 7-year MACRS depreciationmethod (7-year MACRS depreciation rates are showing below). Thecompany thinks the equipment could be sold out by the end of year 6for $20,000. With a tax rate of 35% and required return of 18%,should the company take this project or not? Why? (Please show bothNPV and IRR decisions). 7-year MACRS 1. 14.29% 2. 24.49% 3. 17.49%4. 12.49% 5. 8.93% 6. 8.92% 7. 8.93% 8. 4.46%