The A-2020 Chip Company is looking to add a new spice machine to increase the number of flavors that can be offered to their customers. The new machine will cost $690,000 and will be depreciated straight line to zero over the 3 year life of the machine. There is no salvage value. The company believes this will save the firm 345,000 per year in pre-tax operating expenses. The new machine will require 25,000 in net working capital today. That cost will be recovered when the project ends. The company has a tax rate of 25% and will use a 10% discount rate to evaluate the project.

What is the cash flow at time 0?

machine + nwc =

Use the tax shield approach to determine operating cash flow

depreciation expense

tax savings from depreciation

operating costs savings after-tax

cash flow from operations

Solve for net present value- show all calculator inputs

cf0 =

c01 =

c02 =

c03 =

i =

npv =

Should the project be accepted or rejected?