Question
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
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
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