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4. (NPV and cash flows) A factory is considering the purchase of a new machine for one of its units. The machine costs $100,0
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Answer #1

Below Table summaries the calculations to find the cashflows:

Depreciation per year = (Asset - Salvage)/Life of Asset = (100000-0)/10 = 10000/ year

NPV can be calculated using finance calculator @8%. in Excel we can use formula like =NPV(8%,B15:L15)

NPV is $50307.29

Year 0 1 2 3 4 5 6 7 8 9 10
Revenue 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000
Operating Expense(Salary)(-) 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000
EBITDA 30000 30000 30000 30000 30000 30000 30000 30000 30000 30000
Depreciation(-) 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000
EBIT 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000
Tax(35%)(-) 7000 7000 7000 7000 7000 7000 7000 7000 7000 7000
Net Income 13000 13000 13000 13000 13000 13000 13000 13000 13000 13000
Depreciation(Non Cash Expense) 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000
Initial Investment -100000

Cashflows(Net Income + Depreciation)

 -100000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000
npv
$50,307.29
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