The machine costs $92,000 and depreciation is calculated straight line (equal amounts) over 4 years Every year, the machine increases cash flows by…
- The machine costs $92,000 and depreciation is calculated straight line (equal amounts) over 4 years
- Every year, the machine increases cash flows by an amount of $34,000 (Taxes, Opportunity Cost etc. have all been accounted for in this number and 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; therefore, this is a 3 year project
- The rate of discount = 9%
- The tax rate = 40%
What is the NPV of installing the machinery?
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