Calculate the net present value of the new machine

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Reference no: EM131052220

The Cabbage Patch Company currently uses a printing press that was purchased 5 years ago. The machine has a life of 15 years and was purchased for $7,500. The current book value of the machine is $5,000. A new machine costing $12,000 can be purchased with a life of 10 years and will expand sales from $10,000 to $11,000 a year. Also labor cost would be reduced from $7,000 to $5,000. The new machine will have a salvage value of $2,000 at the end of ten years. The old machine has a market value of $1,000. Taxes are at a 40 percent rate and the firm's cost of capital is 10 percent. The company will sell the new equipment at the end of its life for $2,000. The old equipment has a zero salvage value. Use straight line depreciation to calculate the depreciation. Calculate the net present value of the new machine?

Reference no: EM131052220

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