Unformatted text preview: flow is $0 and discount rate is 15%) 3. Company X is considering a piece of equipment that costs $3,000 and will produce cash flows of $1200 in each of the next three years. What is the IRR of the project? 4. Company Z is considering a new machine. The machine will cost $1MM and will be depreciated on a straight line basis for five years to a zero salvage value. Revenues from the machine are expected to be $800,000 per year and all associated expenses are expected to be 50% of revenue. If the company is taxed at a rate of 34% and the appropriate discount rate is 15%, will the company invest in this new machine? 4a) If the company’s discount rate increases to 20%, will they invest in the machine? 4b) What is the IRR of the investment?...
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- Fall '09
- Net Present Value, appropriate discount rate