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ABC Co can currently produce 1000 unts of toys every year ABC Co. is considering purchasing a machine to increase its production and sales. The

  1. ABC Co can currently produce 1000 unts of toys every year ABC Co. is considering purchasing a machine to increase its production and sales. The

machine has a price of 200 and an expected 2 year life. it can be depreciated using the

linear depreciation method to its anticipated salvage value of 0 I.e. the terminal book value will be 0). At the end of the 2nd year, the machine will be worth nothing.

After purchasing the machine, the company can produce and sell 1500 units annually for

two vears. The margin before deprecation is 0.2/unit.

ABC has no net working capital. The corporate tax rate is 50%

The discount rate of the project is 10%. What is the NPV of the project?

answer is -$26.45

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