Explansion Project:

ABC is planning to buy a new heavy duty printing machine. You were hired to assist KFUPM on this decision. So you gathered the following information. The new machine has a life of 3 years.

New Machine:

Life of machine: 3 years

The cost of the new machine is SAR 1,134

The machine will increase the gross profit every year by SAR 314

The market value of the machine when sold at the end of its life is SAR 191

If replaced, then the net working capital (NOWC) will increase every year by SAR 22

ABC will recover all investments in working capital at the end of the new machine's life (after 3 years).

WACC is

9.49%

Tax rate is 40%

KFUPM uses straight-line Depreciation.

Calculate the follwoing:

A1. New Machine: Yearo Year1 Year2 Year3 NOPAT + Dep. Year1 Year2 Year3 A2. Cash Flows from Working Captial (WC): Yearo (-) change in NOWC* *make sure to put the correct sign 0 0 A3. Cash Flows from the Initial Outlay (10): Yearo (-) 10* X X X *make sure to put the correct sign A4. Cash Flows from Terminal Cash Flows (TCF): X Year3 X TCF* X X X *make sure to put the correct sign A5. Free Cash Flows: Yearo Year1 Year2 Year3 FCF* *The sum of A1-A4 D. NPV =