Clayton Pty Ltd is considering the purchase of a new cheese-packaging machine with a price tag of $350,000, which will wrap their smelling cheeses more efficiently and in a completely air-tight form for transportation. The cost of this machine will be depreciated straight-line to zero over the projects five-year life, at the end of which the packaging machine can be scrapped for $60,000. The new packaging machine will save the firm $110,000 per year in pre-tax operating costs and requires an initial investment in net working capital of $12,000. If the tax rate is 30% and the opportunity cost is 10%p.a., should the machine be bought? The project should be accepted as the NPV > 0. Please calculate the process.

Benefits 110000

Dep. 70000

EBIT 40000

T 12000

NI 28000

OCF= NI+D 98000

AT Salvage 42000

Year 0 1 2 3 4 5

OFC 98000 98000 98000 98000 98000

NCS -350000 42000

NWC -12000 12000

CFA -362000 98000 98000 98000 98000 152000

NPV $43026.85