Calculate the NPV of this project

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Question - Polycorp is considering the purchase of a machine for $800,000. The salvage value at the end of its three-year life is $90,000. Annual cash operating revenues are $800,000, $700,000 and $650,000 in years 1, 2 and 3, and cash expenses (before interest) are $300,000, $250,000 and $200,000 respectively. The machine will be depreciated for tax purposes using straight-line depreciation of 25% per year. Assume a corporate tax rate of 30% (tax is paid in the year the income is earned). The company requires a return of 11%pa after tax on this type of investment. A feasibility study was conducted last year at a cost of $210,000. The project will initially be financed using debt of $400,000 and $400,000 in equity. The loan is to be repaid over three years. The cost of debt is 7%pa. Calculate the NPV of this project. Should the project be accepted? Explain and defend your answer and calculations.

Reference no: EM133015527

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