Question

Snowy Mountain Timber Ltd is considering purchasing a new wood saw that costs $55,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labour needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $1,000 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Snowy Mountain’s tax rate is 34 percent, and its opportunity cost of capital is 17.10 percent. The project's NPV is $___________,The project should be rejected or accepted?

Answer 1

Solution :

The project's NPV is $ 20,439.58

= $ 20,440 ( when rounded off to the nearest whole number )

The project should be accepted as the NPV is positive.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.