Question

Current Alem III Progress Cranc Lumber, Inc., is considering purchasing a new wood saw that costs $50.000. The saw will generate revenues of $100,000 per year for five ycars. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $2,900 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane's tax rate is 34 percent, and its opportunity cost of capital is 14.50 percent. What is the project's NPV? (Do not round intermediate calculations. Round final answer to the nearest whole dollar, e.g. 5,275.) Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) NPV $ Should the company purchase the saw? The company the machine

Answer 1

rate positively ..

	Year		0	1	2	3	4	5
A	Initial investment		-50000
i	Revenue			100000	100000	100000	100000	100000
ii	Material and labor cost			60000	60000	60000	60000	60000
iii	Other expenses			10000	10000	10000	10000	10000
iv	Depreciation			10000	10000	10000	10000	10000
v=i-ii-iii-iv	Profit before tax			20000	20000	20000	20000	20000
vi=v*34%	Tax @ 34%			6800	6800	6800	6800	6800
vii-v-vi	Profit after tax			13200	13200	13200	13200	13200
B=vii+iv	Cash flow			23200	23200	23200	23200	23200
C	Salvage value							1914
	2900*(1-34%)
D=A+B+C	Net cash flow		-50000	23200	23200	23200	23200	25114
E	PVIF @ 14.5%		1	0.8733624	0.762762	0.6661677	0.5818058	0.5081273
F=D*E	Present value		(50,000)	20,262	17,696	15,455	13,498	12,761	29,672
	Therefore NPV =		29,672
	Since NPV is positive therefore = the company SHOULD ACCEPT the machine