Question

Benjamin Box Corporation is considering adding another machine for the manufacture of corrugated cardboard. The machine would cost 709,100.

It would have an estimated life of 6 years and no salvage value.

The company estimates that annual cash inflows would increase by 301,100 and that annual cash outflows would increase by 138,200.

Management believes a discount rate of 6%.

(a) Calculate the present value on this project.

(b) Calculate the net present value on this project, and discuss whether it should be accepted.

show all your calculation.

Answer 1

Benjamin Box Corporation
Capital Budgeting decision
Year	Intial Investment	Net increase In Annual cash Inflow/ (outflow)	Pv factor @ 6%	Present Value
0	$                709,100		1
1		$                              162,900	0.9434	$          153,680
2		162,900	0.8900	144,981
3		162,900	0.8396	136,771
4		162,900	0.7921	129,033
5		162,900	0.7473	121,735
6		$                              162,900	0.7050	114,845
				$          801,044
Net Present Value			( $801,044- $709,100)	$             91,944