Question
A bank has decided to purchase an ATM (automated teller machine) for $110,000 that has an estimated life of 6 years and can be depreciated
A bank has decided to purchase an ATM (automated teller machine) for $110,000 that has an estimated life of 6 years and can be depreciated to no value during its useful life. Maintenance over that period will begin at $2,500 annually and increase by 8% per year. If the ATM is purchased, the bank will not be required to hire one additional (human) teller. Including fringe benefits, the teller costs $20,000 per year, and this amount is expected to increase 5% annually. The bank's cost of capital is 10% and pays a corporate tax rate of 35%. Determine the incremental cash flow in each year of the ATM's useful life (including the initial purchase in year 0), then use these figures to calculate the NPV of this purchase.
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