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Calculate the net present value of the investment

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Reference no: EM133147545

Question - Spotless Cleaning Ltd wishes to evaluate an investment on a particular washing machine. In your role as consultant to the company you have collected the following information regarding this machine:

Washing Machine

Purchase Price 9,800

Life 10 years

Annual Maintenance cost 150

Expected Salvage Value 1,000

Once bought, this machine will be depreciated to zero over its life. The company's tax rate is 30%. The company has revenues that are not impacted by the choice of machine against which any losses for tax purposes can be offset. The cost of capital required to finance this project is 8% p.a. compounded annually.

Required -

1. What is the net cash flow of this washing machine investment at the start (in Year 0)?

2. What is the net cash flow of this washing machine investment in year 10?

3. Calculate the net present value of the investment opportunity to buy this washing machine.

Reference no: EM133147545

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