Question

fmodule jtemid-703249 Question 6 0/1 View Policies Show Attempt History Current Attempt in Progress x Your answer is incorrect Crane Lumber, Inc, is considering purchasing a new wood saw that costs $80,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $2.400 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane's tax rate is 34 percent, and its opportunity cost of capital is 12.30 percent. What is the project's NPV? (Do not round intermediate calculations. Round final answer to the nearest whole dollar, eg 5,275) Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) NPV -927.20 Should the company purchase the saw? The company the machine. eTextbook and Media Attempts: 1 of 3 used Save for Later Submit Answer <Prev Next Send to Gradebook MacBook Air 4 6 de Y T P H K

Answer 1

rate positively ..

		Year		0	1	2	3	4	5
	A	Initial investment		-80000
	i	Revenue			100000	100000	100000	100000	100000
	ii	Cost of material labor			60000	60000	60000	60000	60000
	iii	Other cash expenses			10000	10000	10000	10000	10000
	iv	Depreciation =80000/5			16000	16000	16000	16000	16000
	v=i-ii-iii-iv	Profit before tax			14000	14000	14000	14000	14000
	vi=v*34%	Tax @ 34%			4760	4760	4760	4760	4760
	vii=v-vi	Profit after tax			9240	9240	9240	9240	9240
	B=vii+iv	Cash flow			25240	25240	25240	25240	25240
	C	Salvage value =							1584
		2400*(1-34%)
	D=A+B+C	Net cash flow		-80000	25240	25240	25240	25240	26824
	E	PVIF @ 12.3%		1	0.890472	0.79294	0.706091	0.628754	0.559888
	F	present value		-80000	22475.51	20013.81	17821.74	15869.76	15018.44	11199.26
		therefore NPV =		11199.26
	The company SHOULD PURCHASE the machine.