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Consider the following debt-free project for a machine: Physical Lifespan 5 years Capital Expense, Year 0...

Consider the following debt-free project for a machine: Physical Lifespan 5 years Capital Expense, Year 0 $13,000 EBITDA / Year $8,000 Cost of Capital 5.3% Tax Rate 22% Depreciation Life 4 years What is the value of this project? Note: Report answer to 4 decimal places, no rounding.

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Expert Solution

Time line 0 1 2 3 4 5
Cost of new machine -13000
=Initial Investment outlay -13000
EBIDTA 8000 8000 8000 8000 8000
-Depreciation Cost of equipment/no. of years -3250 -3250 -3250 -3250 0
=Pretax cash flows 4750 4750 4750 4750 8000
-taxes =(Pretax cash flows)*(1-tax) 3705 3705 3705 3705 6240
+Depreciation 3250 3250 3250 3250 0
=after tax operating cash flow 6955 6955 6955 6955 6240
Total Cash flow for the period -13000 6955 6955 6955 6955 6240
Discount factor= (1+discount rate)^corresponding period 1 1.053 1.108809 1.1675759 1.2294574 1.2946186
Discounted CF= Cashflow/discount factor -13000 6604.938 6272.496 5956.7863 5656.9671 4819.9522
NPV= Sum of discounted CF= 16311.1399

jeff jeffy answered 2 years ago
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