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Find the incremental cash flows and compute the NPV

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Reference no: EM132858909

Question - Your task is to analyse a cost cutting project, where a new and more efficient machinery is installed. You have the following data:

Acquisition cost of a new machinery: $600,000

Additional working capital investment: $50,000 (recovered at the end of project)

Annual (before tax and depreciation) cash savings from the improved efficiency: $100,000

Lifespan of a new machine: 5 years

Corporate marginal tax rate: 25%

Depreciation: straight-line to zero book value.

Market value of the machinery in 5 ys: 60,000

Cost of capital: 12%

Find the incremental cash flows and compute the NPV of this cost cutting project and argue if the company should invest into this project?

Reference no: EM132858909

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