Question

Clayton Pty Ltd is considering the purchase of a new cheese-packaging machine with a price tag of $350,000, which will wrap their smelling cheeses more efficiently and in a completely air-tight form for transportation. The cost of this machine will be depreciated straight-line to zero over the project’s five-year life, at the end of which the packaging machine can be scrapped for $60,000. The new packaging machine will save the firm $110,000 per year in pre-tax operating costs and requires an initial investment in net working capital of $12,000. If the tax rate is 30% and the opportunity cost is 10%p.a., should the machine be bought? The project should be accepted as the NPV > 0. Please calculate the process.

Benefits             110000

Dep.                    70000

EBIT                     40000

T                          12000

NI                        28000

OCF= NI+D        98000

AT Salvage        42000

                                           Year                0                1                  2               3                      4               5

                                           OFC                               98000        98000        98000           98000       98000

                                           NCS         -350000                                                                                       42000

                                          NWC         -12000                                                                                         12000

                                          CFA           -362000      98000      98000              98000          98000       152000

                                          NPV          $43026.85

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE