Question

Taylor Company is considering the purchase of a new machine. The machine will cost $180,000 and is expected to last for 9 years. However, the machine will need maintenance costing $15,000 at the end of year four and maintenance costing $30,000 at the end of year eight. In addition, purchasing this machine would require an immediate investment of $32,000 in working capital which would be released for investment elsewhere at the end of the 9 years. The machine is expected to have a $10,000 salvage value at the end of 9 years. The machine will be used to generate net cash inflows of $60,000 per year in each of the 9 years. Taylor Company has a cost of capital of 16% and an income tax rate of 30%. Calculate the net present value (NPV) of this machine. You will need to use the present value table factors posted in carmen to answer this question. To access these factors, click modules and then scroll to weeks 13 & 14. Click on the link labeled present value table factors. No credit will be awarded for this question using a means other than these table factors to answer this question.

Answer 1

NPVA $9150 Calculation of New Step 17 Intial Cash out flow year o Machine Cost $180.000 4th maintenance (discounted to ast year) 15000+ PureF (4,167) $ 8280 1spook 0:5520 . 8th Maintenance (Discounted to zero year) $ 30007 * PvF (3, 167.) $30000 * 0-3050 Additional 32000 Outlay Total Initial out flow $229,430 Stup? Calculation of Depreciation Under Sem = 180.000 - 1000d · 18889 O qur Step 3: CASH IN HOUS 1 year CF's Depreciation Total CF's Aftertas 0-4 6000] 18.889 78889 55,222 Total pug Cash in flowy = $254380 PUAK PUCE'S 406065254380

Stepht Terminal Cash flores . Since Salvage value Equal to Book value after a year CNo Capital gain) 9th gear Salurage Value - 10000 * PVF (9th, 167) Temisel outley - 32000 * PUFC9, Koy) Salvage Value - 10000 * 0.2620 = $ 2630 Termiso = 32000 * 0-2630 = $ 8416 outlay Total Inflow = $11046 Step St NPU Present Value of Cash In flory . 254380 + 11046 lony Present Value of Cash outflony $229, 420) tve Nov $35996 Since NPU is positive therefore the company ů beneficial to purchase the machinery ; = $265.426