Question
A company is considering replacing an old machine with a new one. The old machine is completely depreciated and can be sold for $50,000 in
A company is considering replacing an old machine with a new one. The old machine is completely depreciated and can be sold for $50,000 in the market. The company intends to sell this machine if it is replaced. The new machine costs $450,000. The replacement of the machine will require an increase in the inventories by $250,000. The new machine is going to be depreciated over 4 years to 0 salvage value. The new machine will increase annual revenue by $170,000 in addition it will reduce annual operating costs by $30,000. This new machine can be sold for $100,000 in 4 years. The projects life is 4 years. The companys tax rate is 30% and the cost of capital is 12%.
What is the CF0?
What is CF4 (the cash flow to be used in NPV calculations)?
What is the NPV of the project?
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