What is the npv of installing the machinery

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Reference no: EM131986129

The machine costs $80,000. Depreciation is calculated straight line (equal amounts) over 4 years.

Every year the machine increases cash flows by an amount 32,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)

After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000. This, therefore, is a 3 year project.

The rate of discount is 9%

The tax rate is 40%.

(Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.)

What is the NPV of installing the machinery?

Reference no: EM131986129

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