Question
Foster Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines (to replace
Foster Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines (to replace an existing manual system). The outlay required is $3,575,000. The NC equipment will last 5 years with no expected salvage value. The expected incremental after-tax cash flows (cash flows of the NC equipment minus cash flows of the old equipment) associated with the project follow:
Year | Cash Inflow | Cash Expenses Related to the Project |
1 | $1,750,000 | $685,000 |
2 | $1,750,000 | $685,000 |
3 | $1,750,000 | $685,000 |
4 | $1,750,000 | $685,000 |
5 | $1,750,000 | $685,000 |
Foster has a cost of capital equal to 15%. The above cash flows are expressed without any consideration of inflation. Calculate the NPV for the project. Round to two decimal places.
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