Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the IRR of the project? O 14.1% 31.3% 9.5% 28.2% O 19.7%
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the IRR of the project? O 14.1% 31.3% 9.5% 28.2% O 19.7%
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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![Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and
installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be
depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs.
The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview
has a cost of capital of 12% and a marginal tax rate of 34%.
What is the IRR of the project?
14.1%
O 31.3%
9.5%
O 28.2%
O 19.7%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1b2788d8-4c39-463d-9e2e-a337064d0eae%2Ffe83c43a-7952-44d5-8ab9-5cfa1593f07d%2Fb5wcdzr_processed.png&w=3840&q=75)
Transcribed Image Text:Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and
installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be
depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs.
The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview
has a cost of capital of 12% and a marginal tax rate of 34%.
What is the IRR of the project?
14.1%
O 31.3%
9.5%
O 28.2%
O 19.7%
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