Table 11.5
Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains.
-The internal rate of return for the project is ________. (See Table 11.5)

Question

Quizplus · Accepted Answer

Using Table 11.5, the net present value of the project is $6,247.35. Therefore, the internal rate of return is greater than the required return of 12 percent, making it an attractive investment. Choice C is the best answer.

Table 11.5 Nuff Folding Box Company, Inc. Is Considering Purchasing a New