Calculate the net present value

Reference no: EM13191372

As capital investment analyst for the Parkhurst Printing Corporation, you have been asked to evaluate the advisability of purchasing a new printing press to accommodate projected increases in demand. This new machine is expected to last 5 years, and you will be calculating the cash flows of the project for that period.
The purchase price of the press is expected to be $140,000; in addition, it will cost $10,000 to install it. The press will be depreciated on a straight-line basis over 5 years to a zero salvage value. However, it is expected to have a market value of $10,000 at the end of 5 years.
The press is expected to generate the following cash revenues and cash costs and expenses:
Year 1 Year 2 Year 3 Year 4 Year 5
Cash revenue $50,000 $80,000 $80,000 $80,000 $40,000
Cash Cost & Expense 25,000 40,000 40,000 40,000 20,000
Because of increased production, additional working capital of $15,000 will be needed at t=0 (today) and will be returned at the end of the project (5 years from now). The income tax rate is 40 percent, and the company's cost of capital is 12 percent.
Calculate the net present value. Should the press be purchased?

Reference no: EM13191372

Questions Cloud

Explain adiabatic expansion back to its initial temperature : adiabatic expansion back to its initial temperature, (c) reversible isothermal compression back to 1.00 atm. Calculate q, w, delta U, and delta H for each step.

When the same efforts must be made to uncork : Most restaurant customers tip according to a percentage rule between 15 and 25 percent of the bill. Diners who have dinner and a $20 bottle of wine usually pay the same percentage of the bottle price as diners who order a $100 bottle.

State nitrate is reacted with sulfanilimide : The nitrite ion (NO2-) is commonly determined by a colormetric procedure using a reaction called the Griess reaction. Im this reaction the sample containing nitrate is reacted with sulfanilimide

Current subsidy are discussed or addressed in parliament : THE SOUTH AFRICAN GOVERNMENT IS NOT PROVIDING ENOUGH WELFARE OR SUBSIDIES TO THE POOR AND UNDERPRIVILEDGED.

Calculate the net present value : As capital investment analyst for the Parkhurst Printing Corporation, you have been asked to evaluate the advisability of purchasing a new printing press to accommodate projected increases in demand. This new machine is expected to last 5 years, a..

In what sense does the fed create money : Assuming that banks used all their excess reserves to support an increase in the volume of bank lending, by how much would bank lending expand if the Fed undertook the policy action that was your answer to the question above.

To determine the maximum value of total consumer well-being : Suppose that firms are NOT owned by consumers.than what is the value of that maximizes total consumer well-being?

Compute the work done by the gas in each case : calculate the work done by the gas in each case. For He, Cp= 20.79 J/K/mol and Cv= 12.38 J/K/mol, which may be taken as independent of temperature.

Find the subgame perfect equilibria of the extensive game : An incumbent in an industry faces the possibility of entry by a challenger. First the challenger chooses whether or not to enter. If it does not enter, neither firm has any further action; the incumbent's payoff is TM (it obtains the profit M in e..

User Account

All Pages