Homework Answers
a: Year 0 CF= -2331000
Year 1 CF = 863460
Year 2 CF = 863460
Year 3 CF= 1622760
b: NPV = 440990.61
Workings
| Year | Working capital | Cost
of new machine |
Tax
shield- depreciation |
Sale
of new machine |
(Sales-cost) after tax |
Net CF |
| 0 | -420000 | -2450000 | 539000 | -2331000 | ||
| 1 | 863460 | 863460 | ||||
| 2 | 863460 | 863460 | ||||
| 3 | 420000 | 339300 | 863460 | 1622760 | ||
| NPV | 440990.61 |
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in annual sales, with costs of $644,000. The project requires an
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