Business, 09.03.2020 18:16 jenniferpt

Foster Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines (to replace an existing manual system). The outlay required is $3,500,000. The NC equipment will last 5 years with no expected salvage value. The expected incremental after-tax cash flows (cash flows of the NC equipment minus cash flows of the old equipment) associated with the project follow:

Year Cash Benefits Cash Expenses
1 $3,900,000 $3,000,000
2 3,900,000 3,000,000
3 3,900,000 3,000,000
4 3,900,000 3,000,000
5 3,900,000 3,000,000

Foster has a cost of capital equal to 10%. The above cash flows are expressed without any consideration of inflation.
Required:
1. Compute the payback period. Round your answer to two decimal places.
years
2. Calculate the NPV and IRR of the proposed project. Use the minus sign to indicate a negative NPV. Round IRR to the nearest percent.

NPV $
IRR %

Answers: 3

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Foster Company wants to buy a numerically controlled (NC) machine to be used in producing specially...

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