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A division of Virginia City Highlands Manufacturing is considering purchasing for 1,500,000 a machine that automates...

A division of Virginia City Highlands Manufacturing is considering purchasing for 1,500,000 a machine that automates the process of inserting electronic components onto computer motherboards. The annual cost of operating the machine will be $50,000, but it will save the company $370,000 in labor costs each year. The machine will have a useful life of 10 years, and its salvage value in 10 years is estimated to be $300,000. Straight-line depreciation will be used in calculating taxes for this project, and the marginal corporate tax rate is 32 percent. If the appropriate discount rate is 12 percent, what is the NPV of this project?

I would like help with this question using the regular NPV equation or a BA II PLus Professional calculator, seeing it done in excel does not help me at all.

Solutions

Expert Solution

Statement showing NPV

Particulars 0 1 2 3 4 5 6 7 8 9 10 NPV
Cost of machine -1500000
Savings in labour 370000 370000 370000 370000 370000 370000 370000 370000 370000 370000
Annual cost -50000 -50000 -50000 -50000 -50000 -50000 -50000 -50000 -50000 -50000
Depreciation -120000.0000 -120000 -120000 -120000 -120000 -120000 -120000 -120000 -120000 -120000
PBT 200000.0000 200000 200000 200000 200000 200000 200000 200000 200000 200000
TAX @ 32% 64000.0000 64000 64000 64000 64000 64000 64000 64000 64000 64000
PAT 136000.0000 136000 136000 136000 136000 136000 136000 136000 136000 136000
Add: depreciation 120000.0000 120000 120000 120000 120000 120000 120000 120000 120000 120000
Cash flow 256000.00 256000 256000 256000 256000 256000 256000 256000 256000 256000
Salvage value 3000000
Total cash flow -1500000.00 256000.00 256000.00 256000.00 256000.00 256000.00 256000.00 256000.00 256000.00 256000.00 3256000.00
PVIF @ 12% 1.00 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220
Present value -1500000.00 228571.43 204081.63 182215.74 162692.63 145261.28 129697.57 115801.40 103394.11 92316.17 1048344.86 912376.81

jeff jeffy answered 1 year ago
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