Bush Stone-Curlew Ltd. is a company that makes upmarket timber-based products in Brisbane. It is considering replacing 5 employees with a new machine that costs $350,000. The machine will be depreciated using the prime cost method over five years and have a terminal book value of $5,000. The market value of the machine will be $50,000 in five years. Each of those employees is currently paid an annual salary of $20,000. If bought, the machine will immediately reduce the companys net working capital by $35,000, but this amount of net working capital will have to be fully replaced once the machine is sold. The companys cost of capital is 15%. Bush Stone-Curlew Ltd. is subject to a corporate tax rate of 35%.

Answer the following questions:

1. Calculate NOPAT (Net Operating Profit After Tax).
2. Calculate NCF (Net Cash Flows).
3. Calculate NPV (Net Present Value).
4. Should Bush Stone-Curlew Ltd. buy the machine?

Instructions:

• Round your final answers to 2 decimal places.
• Use Table 1. Accounting Flows on the next page to calculate NOPAT.
• Use Table 2. Cash Flows on the next page to calculate NCF.
• Parts c) and d) can be done right at the bottom of Table 2. Cash Flows.

Table 1. Accounting Flowsel Table 2. Cash Flowsel Table 1. Accounting Flowsel Table 2. Cash Flowsel