Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions