New Project Analysis

New Project Analysis

Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pretax manufacturing costs by $90,000 annually. Holmes would use the 3 Year
MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33%, 45%, 15% and 7%. Net Operating working capital would increase by $25,000 initially, but it would be recovered at the end of the
projects 5-year life. Holmes’s marginal tax rate is 40%, and a 10% WACC is appropriate for the project.

Calculate the projects NPV, IRR, MIRR and payback.

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