For this question start fresh, do not carry over data from earlier questions. You are analyzing the prospects of installing cost saving machinery. You have the following information:

• The machine costs $84,000. Depreciation is calculated straight line (equal amounts) over 4 years.

• Every year the machine increases cash flows by an amount 40,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)

• After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000. This, therefore, is a 3-year project.

• The rate of discount is 8%.

• The tax rate is 36%.

• (Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.)

What is the NPV of installing the machinery?