Reference no: EM132966086
Question - Kiwi Throwing Sticks, Inc., is considering purchasing a new boomerang-making machine to keep up with the insatiable demand for boomerangs in the Australian market. Kiwi's current machine is decent, but it can only produce 4,200 boomerangs per year. The machine is cheap to maintain, however, as it only has $1,100 per year in maintenance costs. If Kiwi wanted to sell its current machine, there is another company who would pay $77,000 for the device.
The new machine has an invoice price of $760,000, and there will also be a $61,000 installation charge. Its annual maintenance costs are $19,000 per year, but it has double the output of the old machine - 8,400 boomerangs per year! Each boomerang sells for $49, so being able to make more is great for the bottom line.
The new machine has a lifespan of 6 years, over which time it can be depreciated using straight-line depreciation and eventually sold for $105,000. Kiwi's tax rate is only 21%, and its cost of capital is 10%.
Write in every year's total cash flow in the boxes provided. At the end, write the total NPV of this investment.
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