Question
Kinston Industries is considering investing in a machine that will cost $120,000 (at year 0) and will last for three years (i.e., the project ends
Kinston Industries is considering investing in a machine that will cost $120,000 (at year 0) and will last for three years (i.e., the project ends after three years). The machine will generate revenues of $180,000 each of these three years (beginning in year 1), and the cost of goods sold will be 50% of sales. At the end of year 3, the machine will be sold for $15,000. The appropriate cost of capital is 10%, and Kinston is in the 40% tax bracket. Assume that Kinston's new machine will have yearly depreciation of $30,000 and there will be no change in net work capital, what is the NPV of this project?
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