Question

Excelsior Company is evaluating the proposed acquisition of a new production machine. The base price is $260,000, and installation costs would amount to $28,000. An additional $10,0 working capital would be required at installation. The machine has a class life of 3 years. The would save the firm $110,000 per year in operating costs. The firm is planning to keep the n place for 5 years. At the end of the fifth year, the firm plans to sell the machine for $120,000 has a required rate of return on investment projects of 12% and a marginal tax rate of 34% NPV of the project? $92,717 O $90,987 $122,300 $130,250 $83,040

Answer 1

Net Net Depreciati Operating workingInvestmen tax cash PVIF@ Net after Cost Depreciati Year savings Tax@34%, income cash flows capital flow 12%! Present value PBT on on $-10,000 $-288,000 $ -298,000 1.000$ $ 105,240 0.893 $ $ 105,240 0.797 $ $ 105,240 0.712 $ $72,600 0.636 $ $ 72,600$ 10,000$ 79,200 $ 161,800 0.567 $ 0 298,000 93,964 83,897 74,908 46,139 91,810 1 $110,000 $ 96,000 $ 14,000 $ 4,760 $ 9,240 $ 96,000 $105,240 $ 2 $110,000 $ 96,000 $ 14,000 $ 4,760$ 9,240 $ 96,000 $105,240 3 $110,000 $ 96,000 $ 14,000 $ 4,760 $ 9,240 $ 96,000 $105,240 $ $ 72,600 $ 4 $110,000 $ 5 $110,000$ 72,600 $ 72,600 $ $110,000 $ 37,400 $110,000 $ 37,400 -120000*( 1-34% Net present value$ 92,717