What is the npv of buying the machine

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Reference no: EM131926565

(Incremental cash flows and NPV) Procter and Gamble is considering buying a new machine that cost $100,000. The machine requires $8,000 in setup costs that are expensed immediately and 12,000 in additional working capital.

The machine's useful life is 10 years, after which it can be sold for a salvage value of $30,000. The machine requires a maintenance overhaul costing $14,000 at the end of year 7.

The overhaul is fully expensed when it is done. P&G uses straight-line depreciation, and the machine will be depreciated to a book value of zero on a six-year basis. P&G has a tax rate of 40% and the project's cost of capital is 13%.

The machine is expected to increase revenues minus expenses by $55,000 per year. What is the NPV of buying the machine?

Reference no: EM131926565

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