Question

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2.86 million and will last for six years. Variable costs are 33% of sales, and fixed costs are $1,976,191 per year. Machine B costs $4.95 million and will last for nine years. Variable costs for this machine are 24% of sales and fixed costs are $1,409,684 per year. The sales for each machine will be $5.3 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 $400,175, an increase in accounts receivable of $703,161, and an increase in accounts payable of $400,037. Assume a salvage value of $730,231 for both machines.

Calculate the NPV for machine A.

Answer 1