INFORMATION OLD MACHINE

Original Purchase Price

$ 550,000.00

Original Life 10 YEARS

Remaining Life 5 YEARS

Straight line depreciation in use

Salvage Value $ 50,000.00

Current Fair Market Value $ 260,000.00

INFORMATION NEW MACHINE A:

Purchase Price $895,000.00

Estimated Life 5 YEARS

Use Straight Line Depreciation Method

Estimated Salvage Value $ 10,000.00

Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes)

End of Year 1 $ 100,000.00

End of Year 2 $ 150,000.00

End of Year 3 $ 250,000.00

End of Year 4 $ 200,000.00

End of Year 5 $ 200,000.00

ASSUMPTIONS:

Tax Rate 40%

WACC Rate 7%

If you sell the old machine and buy new machine A, the NPV will be:

A. 10,619

B. -4,995

C. -5,859

D. 2,907