Firm has decided to renew part of production process

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A firm has decided to renew part of its production process by acquiring a new and more efficient machine at a cost of $24 million which can be depreciated on a linear basis over 4 years. Given its increased productivity, the new machine is expected to increase EBITDA (=Sales – Costs) by $10 million over its existing level at the end of the first year and this level should stay constant for the rest of the project. Working capital requirements are 5% of sales, and also expected to stay constant over the life of the project. At the end of the project, the resale market value of the machine is expected to be $5 million. The tax rate on earnings and capital gains is 30%, and the cost of capital is 12%. Calculate the NPV of the project.

Reference no: EM13909290

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