Questions 5 A machine purchased for $1,000,000 with a life of 10 years, generates annual revenues of $300,000 and operating expenses of $100,000. Assume that machine will be depreciated over 10 years using straight-line depreciation with zero balance at the end of the life. The corporate tax rate is 30%. a) Calculate annual net cash flow of the project b) Calculate project NPV. Guide: Annual net cash flow: (Revenue - operating cost - depreciation - Tax + Deprecation) Profit before tax = Revenue - operating cost - depreciation Profit after tax = Profit before tax - tax amount Amount of tax to be paid= profit before tax * tax rate Depreciation per year = Machine cost / number of year of project 0 1 2 3 4 5 -10 . 1 Purchase cost (initial outlay: 10) Revenue Operating expenses Depreciation Profit before tax Tax Profit after tax Add depreciation Annual net cash flow PV of cash flow (10%) NPV 1 1 Part B