Question

what would NPV be?

A machine is purchased for $12 million with $1 million modification cost and $1 million shipping cost. Net operating working capital of $3 million is needed. The machine will generate additional annual revenue of $8 million and additional annual costs and expenses of $4 million. The machine has a 5 year life and will be depreciated using straight line depreciation. The salvage value of the machine for depreciation purposes is $3 million. It is estimated the machine can be sold after 5 years for $4 milion (tax rate is 40%). The company WACC is 8%.

Answer 1

NPV is 8.4 M$

	SOP	SOP+1	SOP+2	SOP+3	SOP+4
modification	(1,000,000)
shipping	(1,000,000)
WC	(3,000,000)	(3,000,000)	(3,000,000)	(3,000,000)	(3,000,000)
Revenue	8,000,000	8,000,000	8,000,000	8,000,000	8,000,000
expenses	(4,000,000)	(4,000,000)	(4,000,000)	(4,000,000)	(4,000,000)
					3,000,000
					4,000,000
					(1,600,000)
	-	-	-	-	-
	(1,000,000)	1,000,000	1,000,000	1,000,000	6,400,000