GDL is considering upgrading to a new drink mixing machine. The machine costs $60,000 and will require an investment in working capital of $2,000. The new machine will have no effect on the company's costs, but will save the company $20,000 per year in labor and utilities. GDL expects to use the machine for 3 years and then sell it for an expected price of $20,000. The machine will be depreciated using a MACRS 3-year schedule. The required rate of return on this project is 10%, and the tax rate is 40%. Find the NPV of the proposed machine. (1) Find the initial investment required: Cost of the machine After tax Proceeds (if any) from the sale of an old machine Required investment in working capital Total investment required (2) Determine the annual operating cash flows 1 2 Annual Savings Annual Costs Depreciation ? ? Net Income OCF (3) Determine the after tax proceeds from the sale (if any) of the equipment at the end of the project and any working capital recovered. Sale price Book Value Taxable gain Taxes paid Net cash from the sale Working capital recovered Total cash recovered at the end (4) Find the PV of your cash flows 0 Enter the initial investment required. 1 The OCF in year 1 2 The OCF in year 2 3 The OCF in year 3 +Cash recovered (if any) The NPV is