Homework Answers
| NPV | $4,874.33 |
The machine should be purchased since NPV is positive.
Workings
| INPUTS | |
| Initial cost | 150000 |
| Tax rate | 30% |
| Selling price | 10000 |
| Working capital | 0 |
| MARR | 12% |
| EBITDA | 40000 |
| Year | Depreciation rate |
| 1 | 33.00% |
| 2 | 45.00% |
| 3 | 15.00% |
| 4 | 7.00% |
| 5 | |
| 6 |
| Year | Initial cash flow | Tax shield= Tax rate*MACRS rate*Initial cost | EBITDA*(1-Tax) | Working capital | Salvage-After tax | Net cash flows |
| 0 | -150000 | 0 | -150000 | |||
| 1 | 14850 | $28,000.00 | 42850 | |||
| 2 | 20250 | $28,000.00 | 48250 | |||
| 3 | 6750 | $28,000.00 | 34750 | |||
| 4 | 3150 | $28,000.00 | 31150 | |||
| 5 | 0 | $28,000.00 | 28000 | |||
| 6 | 0 | $28,000.00 | 0 | 7000 | 35000 | |
| NPV | $4,874.33 |
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