Estimated annual earnings before taxes

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Smith's Machine Shop had an initial market study performed at a cost of $2,000 on the feasibility of expanding sales into a nearby city. To do so, a new machine would need to be purchased for $12,000. Delivery transportation costs would add $2,000 and installation costs would require $4,000 more. The machine has a useful life of 4 years and would produce annual incremental cash revenues of $8,000. Annual cash-operating expenses are expected to be $3,000. The machine will have zero salvage value and the company uses straight-line depreciation. The company has a 20% corporate income tax rate. These is no change expected in net working capital requirements with the project. All amounts given in the above narrative are pre-tax. The project team has already estimated annual Earnings Before Taxes (EBT) will be $500, which includes annual depreciation expense of $4,500. The project team calculated the present value of the annual after-tax operating cash flows over the useful life of the project to be $15,532 in total. Based on the above information, calculate the Net Present Value (NPV) of this project.

Reference no: EM132499141

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