NPV Calculation A new project involves the purchase of a $9000 food processing m
ID: 2647483 • Letter: N
Question
NPV Calculation
A new project involves the purchase of a $9000 food processing machine. The machine would be depreciated on a straight-line basis over its 3-year useful life to a book value of $300. At the end of the life of the project (at the year 3 point), the machine will be sold for an estimated $800. The project will cause an increase in Sales of $7000 in each of years 1 through 3. It is also expected to enhance efficiencies and reduce operating expenses by $1000 in each of years 1 through 3. The project will require an increase in Accounts Receivable of $1500 and an increase in Accounts Payable of $800 up front. The project's impact on these accounts is expected to disappear at project end (in year 3). The firm's marginal tax rate is 40%, and its WACC is 12%. The NPV of this project is $_________. Round your final answer to 2 decimal places (example: if your answer is 12.3456, you should enter 12.35).
Explanation / Answer
NPV Calculation -
Year Cashflow Depreciation(a) Tax @40% (b) Dicount Rate @12%(c) CF after tax with Depn (a+b) = (d) Future Cashflow (d * c) = (e) 0 (9,000) 1 6,000 3,000 3,600 0.893 6,600 5,893.8 2 3,000 3,000 2,400 0.797 5,400 4,303.8 3 0 3,000 1,200 0.712 4,200 2,990.4 13,188 Add : Salvage Value 800 Total 13,988Related Questions
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