Question

Could you show how to do in excel

6- Suppose you are considering purchasing a $7,500 machine that will increase sales by $2,000 per year over a 4-year period. At the end of the 4 year period, the machine will have a salvage value of 0. The asset will be depreciated to 0 using straight line method. If the appropriate tax rate of 32%, and a required return of 9%, what is the NPV of the project? (-$1150.15)

Answer 1

Calculation of NPV of the Project Particulars Initial Investment Purchase of Machine (A) 2000 2000 2000 2000 1875 Operating Cash Flows Increase in sales (B) Less: Depreciation (C) ($7500 / 4 years) Profit before Tax (D = B-C) Less: Tax @32% (E=D*32%) Profit After Tax (F= D-E) Add back Depreciation (G = C) Net Operating Cash Flows (H = F+G) 1875 125 40 1875 125 40 125 40 1875 125 40 85 1875 1960 1960 1875 1875 1960 1960 1875 1960 1960 1960 -7500 1960 Total Cash Flows (I = A+H) Discount Factor@9% (!) 1/(1+9%)^n n=0,1,2,3,4 Disocunted Cash Flows (K = 1*J) NPV of the Project 11 0.917431 0.84168 0.772183 0.708425 -7500 1798.165 1649.693 1513.48 1388.513 -1150.15 Therefore, NPV of the Project is (-$1,150.15)