A company is considering buying a new machine for one of its factories. The cost of the new machine is $60,000, and it's expected life span is 5 years. The machine will save the cost of a worker estimated at $22,500 annually. The netbook value (salvage value) of the machine at the end of 5 years is $10,000. However, the company estimates that the market value will only be $5,000. Calculate the NPV of purchasing the machine if the discount rate is 12% and the tax rate is 30%. Assume straight-line depreciation over the 5-year life of the machine. (Show solutions and work on excel in the template below).

Buying a new machine

Year	0	1	2	3	4	5
Cost of Savings of workers		22,500	22,500	22,500	22,500	22,500
Depreciation
Earnings before taxes
Tax (30%)
Net operating after taxes
Capital Investment	-60,000
Add back Depreciation
Free cash flow
Discount Rate	12%
NPV
Book Value at year 5	10,000
Market Value at year 5	5,000
Capital Gains of selling at the 5th year