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XYZ corp. is considering investing in a new machine. The new machine cost will $ 10,000...

XYZ corp. is considering investing in a new machine. The new machine cost will $ 10,000 installed. Depreciation expense on the new machine 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 machine today that has a book value of $3000 for $3000. The old machine has depreciation expense of $600 per year. 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 marginal tax rate is 21% and the projects WACC is 15%, What is the projects NPV? Round your final answer to two decimals.

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Expert Solution

NPV 1456.64
Year Sale of old
machine		 Cost of new
machine		 Tax shield-
Incremental depreciation		 Sale of new
machine		 (Sales-cost)
after tax		 Net CF
0 3000 -10000 -7000
1 84 1580 1664
2 84 1580 1664
3 84 1580 1664
4 84 1580 1664
5 84 5790 1580 7454

jeff jeffy answered 3 months ago
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