Question

Q) Your corporation is considering replacing older equipment.  The old machine is fully depreciated and cost  $47,124.00  seven years ago.  The old equipment currently has no market value. The new equipment cost $54,516.00 .  The new equipment will be depreciated to zero using straight-line depreciation for the four-year life of the project. At the end of the project the equipment is expected to have a salvage value of $32,908.00 .  The new equipment is expected to save the firm $35,365.00  annually by increasing efficiency and cost savings.  The corporation has tax rate of  32.93%  and a required return on capital of  13.21% .           

a) What is the total initial cash outflow? (show as negative number )   

  b) What are the estimated annual operating cash flows?   

  c) What is the terminal cash flow?     

d) What is the NPV for this project?

Answer 1

a) Total initial cash outflow is -$54,516

b) Estimated annual operating Cash Flows is $28,207.34

c) Terminal Cash Flow is $22,071.40

d) NPV of this project is $42,457.77