Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Dolphin Plastics is considering replacing molding equipment used to make party cups. The current equipment was purchased two years ago for $95,000. At the time

Dolphin Plastics is considering replacing molding equipment used to make party cups. The current equipment was purchased two years ago for $95,000. At the time of purchase it had a 7-year life with an expected salvage value of $10,000. If sold today Dolphin expects to receive $55,000 for the machine. Dolphin depreciates all assets using straight-line depreciation. Dolphin currently has revenue of $700,000 that is expected to grow at 5% per annum. Dolphin currently has a gross profit margin of 17%.New machinery today will cost $145,000. The new machinery is expected to last 5 years and has a salvage value of $15,000. The new machinery will lower annual operating costs by $5,000 per annum. In addition, the new machine is expected to increase expected revenue (shown below) and increase the firm's gross profit margin to 19%.

Year 1 120,000

Year 2 130,000

Year 3. 140,000

Year. 4 125,000

Year. 5 125,000

Assume a tax rate of 25% and a cost of capital of 11%. What is the project's NPV.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

To calculate the NPV we will first calculate the annual cash flows for each year based on th... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Engineering Economy

Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

15th edition

132554909, 978-0132554909

More Books

Students also viewed these Finance questions

Question

Are there diff erent kinds of memory?

Answered: 1 week ago