D to compute irr use trial and error or a financial

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d.To compute IRR, use trial and error or a financial calculator to solve for rin the following equation:$38,300+$25,700+$20,900+$19,100= $88,000 IRR = 8.07%1 + r(1 + r)2(1 + r)3(1 + rBlooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $25 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $28 million; it will last for 7 years. Both systems entail $3 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm’s tax rate is 40%, and the discount rate is 16%.a.Calculate the equivalent annual cost of each alternative: (Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.) ) 4
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b.Which system should Blooper install?
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3 10,000 4 4,000 Thereafter 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (year-0) investment in working capital of .20 × 28,000 × $60 = $336,000. Plant and equipment necessary to establish the Giftware business will require an additional investment of $206,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm’s tax rate is 20%. What is the net present value of the project? The discount rate is 12%. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Net present value $ rev: 05_12_2012 Explanation: Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. All figures in thousands 0 1 2 3 4 Net workin g capital $ 336 $ 432 $ 120 $ 48 $ 0 Inves tment in NWC 336 96 −312 −72 −48 Inves tment in plant & equip ment 206 0 0 0 0 Cash flow from invest ment activity $−542 $ −96 $+312 $ +72 $ +48 All figures in thousands 0 1 2 3 4 Reven ue $ 1,680.00 $ 2,160.00 $ 600.00 $240.00 Cost 1,120.00 1,440.00 400.00 160.00 Deprec 68.70 91.60 30.50 15.26
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