Question

A division of Ivanhoe Manufacturing is considering purchasing for $1,560,000 a machine that automates the process of inserting electronic components onto computer motherboards. The annual cost of operating the machine will be $52,000, but it will save the company $385,000 in labor costs each year. The machine will have a useful life of 10 years, and its salvage value in 10 years is estimated to be $312,000. Straight-line depreciation will be used in calculating taxes for this project, and the marginal corporate tax rate is 32 percent. If the appropriate discount rate is 12 percent, what is the NPV of this project?

Answer 1

C424 : x Fix + C =(-1423-312000)/10 E A B D F G H I K L M Net Depreciati Net Depreciati Operating After tax PVIF@ 422 Year savings on PBT Tax@32% income on cash flows Investment cash flows | 12% | Present value 423 0 $-1,560,000 $-1,560,000 1.000 $ -1,560,000 424 11 $333,000 $ 124,800 / $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 266,376 0.893 $ 237,836 425 21 $333,000 $ 124,800 $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 266,376 0.797 $ 212,353 426 3 $333,000 $ 124,800 $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 266,376 0.712 $ 189,601 427 41 $333,000 $ 124,800 $ 208,200 $ 66,624 | $141,576 $ 124,800 $266,376 | $ 266,376 0.636 $ 169,287 428 5 $333,000 $ 124,800 $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 266,376 0.567 $ 151,149 429 61 $333,000 $ 124,800 $ 208,200 $ 66,624 | $141,576 $ 124,800 $266,376 | $ 266,376 0.507 $ 134,954 4307 $333,000 $ 124,800 $ 208,200 $ 66,624 | $141,576 $ 124,800 $266,376 | $ 266,376 0.452 $ 120,495 431 8 $333,000 $ 124,800 $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 266,376 0.404 $ 107,585 432 9 $333,000 $ 124,800 $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 266,376 0.361 $ 96,058 433 101 $333,000 $ 124,800 $ 208,200 $ 66,624 $141,576 $ 124,800 $266,376 $ 312,000 $ 578,376 0.322) $ 186,222 | 434 435 Net present value $ 45,539

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