Question 6 4 pts XYZ Company is considering the purchase of a new machine. The m

Question

Question 6 4 pts XYZ Company is considering the purchase of a new machine. The machine will cost $200,000 and is expected to last 10 years. However, the machine will need maintenance costing $25,000 at the end of year three and at the end of year six. In addition, purchasing this machine would require an immediate investment of $35,000 in working capital which would be released for investment elsewhere at the end of the 10 years. The machine is expected to have a $15,000 salvage value at the end of 10 years. The machine will be used to generate net cash inflows of $46,000 per year in each of the 10 years. XYZ Company has a cost of capital of 8% and an income tax rate of 40%. Calculate the net present value (NPV) of this machine. If your answer is negative, place a minus sign in front of your answer with no spaces in between (e.g., -1234). Do not use decimals in your answer. You will need to use the present value table factors posted in canvas t° answer this question. T° 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.

Explanation / Answer

Calculate Present value :

Year Transaction Cash flow Factor Present value 0 Purchase cost (200000) 1 (200000) 3 Maintenance cost (25000) 0.7938 (19845) 6 Maintenance cost (25000) 0.6312 (15780) 0 Working capital (35000) 0 (35000) 10 Working capital released 35000 0.4630 16205 10 Salvage value 15000 0.4630 6945 1-10 Annual cash inflow 46000 6.71 308660 Net present value 61185

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