2. A company is considering buying a new machine for one of its factories. The cost of the machine is $60,000 and its expected life span is 5 years. The machine will save the cost of a worker estimated at $22,500 annually. The book value of the machine at the end of year 5 is $10,000, but the company estimate that the market value will be only $5,000. Calculate the NPV of the machine if the discount rate is 12% and tax rate is 30%. Assume straight-line depreciation over the 5-year life of the machine. A tax shield reduces the cash cost of an expense. The after-tax cost is (1-T)*cost. The cash flow from salvage value is [salvage value - tax rate*(salvage value - book value)] or [salvage vale*(1-tax rate)+tax rate*book value] (PROVIDE ANSWERS IN EXCEL (WITH FORMULAS) FOLLOWING THE FORMAT PROVIDED BELOW)
									Machine cost
									Machine book value, year 5
Annual depreciation
Annual cost savings, before tax
Annual cost savings, after tax & depreciation
Salvage value, year 5
Cash flow from salvage
Tax rate		30.00%				30%
Discount rate		12.00%				12%
Year
0
1
2
3
4
5
NPV