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Occhi grandi Company is considering replacing an old machine, which is totally depreciated using the straight-line method with zero book value; however, it can be
Occhi grandi Company is considering replacing an old machine, which is totally depreciated using the straight-line method with zero book value; however, it can be sold as a secondhand machine to another company for $6,000. The new machine can be purchased for $43,500, including installation. The machine reduces the labor cost of the company by $16,500 per year and reduces damages by $400 per month. However, electricity costs will go up by $100 per month and maintenance costs by $900 per month. The machine has no effect on sales. The operation of the new machine requires an increase of $4,000 in NWC The machine falls into a 5-year MACRS class. The life of the project is expected to be six years, at which time the company sells the machine for $5,000. The Company tax rate is 21 percent, and its WACC for this project is 9.44 percent. What is the NPV of this project? Please explain your approach in a few lines
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