Question

XYZ corp. is considering investing in a new machine. The new machine cost will $10,000 installed. Depreciation expense will be $1000 per year for the next five years. At the end of the fifth year XYZ expects to sell the machine for $6000. XYZ will also sell its old equipment today that has a book value of $3000 for $3000. In five years, the old machine will be fully depreciated and have a salvage value of zero. Additionally, XYZ Corp expects that the new machine will increase its EBIT by $2000 in each of the next five years. Assuming that XYZ’s tax rate is 21% and the new machines WACC is 15%, what is the projects NPV. Round your final answer to two decimals.

NOTE: Answer is not $13,651.94 as someone else put that

Answer 1

Statement showing NPV

Particulars	0	1	2	3	4	5	NPV
Cost of new machine	-10000
Sale of old equipment	3000
Increase in EBIT		2000	2000	2000	2000	2000
Depreciation		1000	1000	1000	1000	1000
EBT		1000	1000	1000	1000	1000
Less: Tax @ 21%		210	210	210	210	210
PAT		790	790	790	790	790
Add: Depreciation		1000	1000	1000	1000	1000
Annual cash flow		1790	1790	1790	1790	1790
Cash flow from sale of machine						5790
Total cash flow	-7000	1790	1790	1790	1790	7580
PVIF @ 15%	1.0000	0.8696	0.7561	0.6575	0.5718	0.4972
PV	-7000.00	1556.52	1353.50	1176.95	1023.44	3768.60	1879.01

Statement showing  Cash flow from sale of machine

Particulars	Amount
Selling price of machine	6000
Book value of machine at end of 5 years	5000
Profit	1000
Tax on above @21%	210
Cash inflow (6000-210)	5790

Thus NPV = $ 1879.01