Question

St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $48,000 per year. The new machine will cost $87,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 18%. The old machine has been fully depreciated and has no salvage value.

What is the NPV of the project? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign.

pelase help!Thank you!

Answer 1

Time line		0	1	2	3	4	5	6	7	8
Cost of new machine		-87500
=Initial Investment outlay		-87500
5 years MACR rate			20.00%	32.00%	19.20%	11.52%	11.52%	5.76%	0.00%	0.00%	0.00%
Profits			21000	21000	21000	21000	21000	21000	21000	21000
-Depreciation	=Cost of machine*MACR%		-17500	-28000	-16800	-10080	-10080	-5040	0	0	0	=Salvage Value
=Pretax cash flows			3500	-7000	4200	10920	10920	15960	21000	21000
-taxes	=(Pretax cash flows)*(1-tax)		2100	-4200	2520	6552	6552	9576	12600	12600
+Depreciation			17500	28000	16800	10080	10080	5040	0	0
=after tax operating cash flow			19600	23800	19320	16632	16632	14616	12600	12600
+Tax shield on salvage book value	=Salvage value * tax rate									0
=Terminal year after tax cash flows										0
Total Cash flow for the period		-87500	19600	23800	19320	16632	16632	14616	12600	12600
Discount factor=	(1+discount rate)^corresponding period	1	1.18	1.3924	1.643032	1.93877776	2.2877578	2.6995542	3.185473901	3.7588592
Discounted CF=	Cashflow/discount factor	-87500	16610.16949	17092.78943	11758.74846	8578.600572	7270.0005	5414.2274	3955.455418	3352.0809
NPV=	Sum of discounted CF=	-13467.93