Question : Please show results the BA II Plus calculator if possible.
Please show results on the BA II Plus calculator if possible.
Calculating NPV and IRR for a Replacement: A firm is considering an investment in a new machine with a price of $18 million to replace its existing machine. The new machine has a book value of $6 million and a market value of $4.5 million. The new machine is expected to have a four-hear life, and the old machine with the new machine, it expects to save $6.7 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $250,000 in net working capital. The required return on the investment is 10%, and the tax rate is 39%. What are the NPV and IRR of the decision to replace the old machine?