1. Bill wants to purchase a machine to help improve the quality of the product his company manufactures. The information needed to answer this question is provided below:
2. INFORMATION NEW MACHINE:
3. Purchase Price $200,000.00
4. Estimated Life 4 YEARS
5. Use Straight Line Depreciation Method
6. Estimated Salvage Value $20,000.00
7. EstimatedNet Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes)
8. End of Year 1 $60,000.00
9. End of Year 2 $80,000.00
10. End of Year 3 $80,000.00
11. End of Year 4 $90,000.00
12. ASSUMPTIONS:
13. Working Capital Addition $40,000
14. Tax Rate 40%
15. WACC Rate 10%
17. Based on this information, if Bill decides to purchase the new machine, the NPV will be:
18. A.4,629
19. B.3,657
20. C.3,381

90 points

QUESTION 2

1. Based on the correct calculation, Bill
2. A.should not buy this machine since the NPV is negative and the company would not be getting a sufficient return.
3. B.should buy this machine since the NPV is positive and the company would getting a sufficient return above the required amount.
4. C.Bill should not buy the machine because the NPV needs to be negative for the company to buy the machine and create wealth.