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Calculate the npv of the project using nominal values

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Reference no: EM133205511

You are considering purchasing a machine to produce golf balls. The cost of the machine is $100,000 and its expected life span is 8 years. The machine will have an annual production of 550,000 balls. The price of a golf ball is today $0.20, and it's expected to rise by 10% each year. The material used to produce a golf ball costs $0.08 and it's expected to rise by 2% a year. To operate the machine you'll need two workers, each earning an annual salary of $30,000. According to their contracts their salaries will rise by 7% a year starting in the third year. The real discount rate is 4%, the expected inflation is 5%, and the corporate tax rate is 40%.

a. Calculate the NPV of the project using nominal values. (NPV: 83951)

b. Repeat the calculation using real values.

Reference no: EM133205511

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