Question

Question 7 4.5 pts Taylor Company is considering the purchase of a new machine. The machine will cost $247,000 and is expected to last for 9 years. However, the machine will need maintenance costing $7,000 at the end of year four and maintenance costing $30,000 at the end of year eight. In addition, purchasing this machine would require an immediate investment of $50,000 in working capital which would be released for investment elsewhere at the end of the 9 years. The machine is expected to have a $10,000 salvage value at the end of 9 years. The machine will be used to generate net cash inflows of $50,000 per year in each of the 9 years. Taylor Company has a cost of capital of 8%. Calculate the net present value (NPV) of this machine. You will need to use the time value of money table factors posted in carmen to answer this question. To access these factors, click modules and then scroll to week 8. Click on the link labeled present & future value table factors. No credit will be awarded for this question using a means other than these table factors to answer this question.

Answer 1

The answer has been presented in the supporting sheet

All of the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

Answer The correct answer is NPV of machine $ 24009 5 Calculations 5 Net Present value = Present value of cash inflow - present value cash outflow = present value of annual saving + Present value of salvage value and release of working capital - cost of machine - Present value of maintaince cost - working capital requirement B = (50000*6.2469)+((50000+10000)*.5003) - 247000 - ((7000*735)+(30000*.5403))-50000 e = 312345+30018-247000 -21354-50000 0 = $ 24009 2 Thus the correct answer is $24009