Crono Clocks is looking at a Clock Machine with an installed cost of $900,000. This cost...

Crono Clocks is looking at a Clock Machine with an installed cost of $900,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the Clock Machine can be scrapped for $111,000. The clock system will save the firm $299,000 per year in pretax operating costs, and the machine requires an initial investment in net working capital of $67,000.

If the tax rate is 34 percent and the discount rate is 8 percent, what is the NPV of this project? (Round answer to two decimal places)

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Expert Solution

Ref	Particulars	Year 1	Year 2	Year 3	Year 4	Year 5

a	Operating cash flow	$ 299,000.00	$ 299,000.00	$299,000.00	$299,000.00	$410,000.00
b	Depreciation	$ 180,000.00	$ 180,000.00	$180,000.00	$180,000.00	$180,000.00

c=a-b	Profit before tax	$ 119,000.00	$ 119,000.00	$119,000.00	$119,000.00	$230,000.00
	Less: taxes	$ 40,460.00	$ 40,460.00	$ 40,460.00	$ 40,460.00	$ 78,200.00
	Profit after tax	$ 78,540.00	$ 78,540.00	$ 78,540.00	$ 78,540.00	$151,800.00
	Add: depreciation	$ 180,000.00	$ 180,000.00	$180,000.00	$180,000.00	$180,000.00
	Cash flow after tax	$ 258,540.00	$ 258,540.00	$258,540.00	$258,540.00	$331,800.00

d	Present value factor@ 8.0%	0.925925926	0.85733882	0.793832241	0.735029853	0.680583197

e=c*d	Present value of annual cashflows	$ 239,388.89	$ 221,656.38	$205,237.39	$190,034.62	$225,817.50

	Total present value of annual cash inflows	$ 1,082,134.78
	Less: investment	$ 900,000.00
	NPV	$ 182,134.78

NPV is $182,134.78

Please rate.

jeff jeffy answered 1 year ago

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