• On a yearly basis the machinery generated a savings of $36,000 which led to an increase in taxes of $4,400. The space used by the machinery was lost, leading to loss of rent (post tax) of $8,000.
• (Hint: Here you don't need to know Depreciation (which is needed for calculating taxes) or the tax rate. You are told what the taxes are. )

What will be the net increase in cash flows per year from installing the machinery?

You are analyzing the prospects of installing cost saving machinery. You have the following information:

• The machine costs $80,000. Depreciation is calculated straight line (equal amounts) over 4 years.
• Every year the machine increases cash flows by an amount 30,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)
• After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000. This, therefore, is a 3 year project.
• The rate of discount is 9%
• The tax rate is 40%.
• (Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.)

What is the NPV of installing the machinery?