An offset printing machine has a starting cost of $ 310,000, useful life of 5 years...

An offset printing machine has a starting cost of $ 310,000, useful life of 5 years with no salvage value. It will produce income of $ 125,000 the first year, with annual increases of $ 15,000. The costs are $ 60,000 constant over the 5 years. Taxes are paid at a rate of 40% and a 10% annual MARR. Determine the NPV of the investment using a straight line depreciation (your result to two decimal places rounded without the $ symbol and if your result is negative include the - sign)

Expert Solution

Using Excel

Year	Untaxed BTCF	Taxed BTCF	SL Dep	Tax income	Tax	ATCF
0	-310000					-310000
1		65000	62000.00	3000.00	1200.00	63800.00
2		80000	62000.00	18000.00	7200.00	72800.00
3		95000	62000.00	33000.00	13200.00	81800.00
4		110000	62000.00	48000.00	19200.00	90800.00
5	0	125000	62000.00	63000.00	25200.00	99800.00
					NPV	-6,391.59

NPW = -6391.59

As NPW is negative, project should not be selected

Showing Formula in Excel

Year	Untaxed BTCF	Taxed BTCF	SL Dep	Tax income	Tax	ATCF
0	-310000					=B2
1		=125000+15000*(A3-1)-60000	=(310000-0)/5	=C3-D3	=E3*0.4	=C3-F3
2		=125000+15000*(A4-1)-60000	=(310000-0)/5	=C4-D4	=E4*0.4	=C4-F4
3		=125000+15000*(A5-1)-60000	=(310000-0)/5	=C5-D5	=E5*0.4	=C5-F5
4		=125000+15000*(A6-1)-60000	=(310000-0)/5	=C6-D6	=E6*0.4	=C6-F6
5	0	=125000+15000*(A7-1)-60000	=(310000-0)/5	=C7-D7	=E7*0.4	=C7-F7
					NPV	=NPV(10%,G3:G7)+G2

Rahul Sunny answered 2 years ago

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