Mars Inc is considering the purchase of a new machine which will increase revenuesby $5,000 annually. Mars will use theModified Accelerated Cost Recovery System (MACRS) accelerated method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000. The firm expects to be able to reduce net operating working capital by $15,000 in year 0,which it expects to return when the machine is sold after 5 years. Mars? marginal tax rate is 40%, and it uses a 12% cost of capital to evaluate projects of this nature. If the machine costs $60,000, what is the net present value (NPV) of the project? (MACRS): Year 1=20%, Year 2=32%, Year 3=19%, Year 4=12%, Year 5=11% and Year 6=6%.

I. Initial Outlay Machine Cost Change in NWC Total Net Investment (Line 2 -3) II. Operating CF Increase in EBIT After tax increase in EBIT (Line 6 * (1-t)) Depreciation (Line 1 * MACRS) Tax savings from depreciation (Line 8 * tax rate) Net operating CF (Line 7 + Line 9) III. Terminal Year CF Estimated Salvage Value Tax on Salvage Value = (line 12 - Book Value)*tax rate and Book Value = (cost - sum of depreciation) Return on NWC Total Termination CF (Lines 12 + 13 + 14) IV. Net Cash Flows Total Net Cash Flow (Lines 4 + 10 + 15) 0 1 2 3 4 5