Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

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Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale.

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Answer 1

Answer #1

Time line		0	1	2	3	4	5



Cost of new machine		-425000
Initial working capital		-25000
=Initial Investment outlay		-450000

								100.00%
Sales			275000	275000	275000	275000	275000
Profits	Sales-variable cost		178750	178750	178750	178750	178750
Fixed cost			-47000	-47000	-47000	-47000	-47000

-Depreciation			-425000	0	0	0	0	0	=Salvage Value

=Pretax cash flows			-293250	131750	131750	131750	131750
-taxes	=(Pretax cash flows)*(1-tax)		-228735	102765	102765	102765	102765
+Depreciation			425000	0	0	0	0
=after tax operating cash flow			196265	102765	102765	102765	102765


reversal of working capital							25000

+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)						35100
+Tax shield on salvage book value	=Salvage value * tax rate						0
=Terminal year after tax cash flows							60100

Total Cash flow for the period		-450000	196265	102765	102765	102765	162865
Discount factor=	(1+discount rate)^corresponding period	1	1.09	1.1881	1.295029	1.4115816	1.538624
Discounted CF=	Cashflow/discount factor	-450000	180059.633	86495.24451	79353.43533	72801.317	105851.08
NPV=	Sum of discounted CF=	74560.70

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