Question

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.94 million and will last for six years. Variable costs are 34% of sales, and fixed costs are $2,065,628 per year. Machine B costs $4.86 million and will last for nine years. Variable costs for this machine are 25% of sales and fixed costs are $1,436,786 per year. The sales for each machine will be $4.7 million per year. The required return is 10 %, and the tax rate is 38%. Both machines will be depreciated to zero on a straight-line basis. Each project will require an increase in inventory of $413,330, an increase in accounts receivable of $726,722, and an increase in accounts payable of $354,374. Assume a salvage value of $757,864 for both machines. Calculate the NPV for machine B.

Answer 1