Question

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Taylor Company is considering the purchase of a ne w machine. The machine will cost $247,000 and is expected to last for 9 y ears. However, the machine will need maintenance costing $7,000 at th e end of year four and maintenance costing $30,000 at the end of year eight. In addition, purchasing this machine would require an immediate investment of $50,000 in working capital which would be released for inv estment elsewhere at the end of the 9 years. The machine is expected to have a $10,000 salvage value at the end of 9 years. The machine will be u sed to generate net cash inflows of $50,000 per year in each of the 9 year s. Taylor Company has a cost of capital of 8%. Calculate the net present value (NPV) of this mach

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 3 In the given question we have to calculate the net present value of the machine 5 Net Present value = Present value of cash inflows - present value of cash outflows = (annual cash inflow*present value annuity factor (8%,9))+((working capital release + salvage)*present value factor(8%,9)) - cost of machine - working capital - present value of maintaince 7 = (50000*6.2469)+((50000+10000) *.5003) - 247000-50000 - 7000*.735) - (30000*.5403) 8 = 312345 +30018-247000-50000-5145-16209 9 = $24009 11 Thus the correct answer 12 Net Present value of the machine = $ 24009 13 14 Thank You