Machine cost = $500,000

Project life = 2 years

Tax allowance for machine = 20% (reducing balance method)

Tax rate = 15% (payable half in the current year)

Cost of capital before tax = 10%

General rate of inflation = 4%

The incremental cash inflows from project = $2 million p.a (in todays value)

The resale value of the machine is calculated at the end of the project to be the same as the net book value of the asset at the time of sale.

Compute the NPV.