Marshall Inc., is looking at a new bottle system that costs $473,522. It will cost an...

Marshall Inc., is looking at a new bottle system that costs $473,522. It will cost an additional $63,445 to modify the system for special use by the firm. The new equipment is classified as five-year property under MACRS (20%, 32%, 19.20%, 11.52%, 11.52%, and 5.76%). Suppose the bottle system will be scrapped for $70,609 at the end of year 4. The new system will increase pre-tax revenues by $249,600 per year, but pre-tax costs will also increase by $40,080 per year. The system requires an initial investment in net working capital of $39,616. If the tax rate is 32 percent and the discount rate is 6.37 percent, what is the NPV of this project?

[Round the final answer to the nearest cent]

Expert Solution

Time line		0	1	2	3	4



Cost of new machine		-536967
Initial working capital		-39616
=Initial Investment outlay		-576583

5 years MACR rate			20.00%	32.00%	19.20%	11.52%	17.28%
Sales			249600	249600	249600	249600
Profits	Sales-variable cost		209520	209520	209520	209520


-Depreciation	=Cost of machine*MACR%		-107393.4	-171829.44	-103097.664	-61858.6	92787.898	=Salvage Value

=Pretax cash flows			102126.6	37690.56	106422.336	147661.4
-taxes	=(Pretax cash flows)*(1-tax)		69446.088	25629.5808	72367.18848	100409.75
+Depreciation			107393.4	171829.44	103097.664	61858.598
=after tax operating cash flow			176839.49	197459.02	175464.85	162268.35


reversal of working capital						39616

+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)					48014.12
+Tax shield on salvage book value	=Salvage value * tax rate					29692.127
=Terminal year after tax cash flows						117322.25

Total Cash flow for the period		-576583	176839.49	197459.02	175464.85	279590.6
Discount factor=	(1+discount rate)^corresponding period	1	1.0637	1.13145769	1.203531545	1.2801965
Discounted CF=	Cashflow/discount factor	-576583	166249.403	174517.3697	145791.6502	218396.63
NPV=	Sum of discounted CF=	128372.05

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