You are analyzing the prospects of installing cost saving machinery. You have the following information: The machine costs $92,000. 1

You are analyzing the prospects of installing cost saving machinery. You have the following information:

  • The machine costs $92,000. Depreciation is calculated straight line (equal amounts) over 4 years.
  • Every year the machine increases cash flows by an amount 36,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)
  • After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000. This, therefore, is a 3 year project.
  • The rate of discount is 9%
  • The tax rate is 40%.
  • (Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.)

What is the NPV of installing the machinery

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