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Consider a $50,000 machine that will reduce pretax operating costs by $15,000 per year over a 5-year period. Assume no changes in net working capital and a salvage value of zero. Further assume straight-line depreciation to zero, a marginal tax rate of 35%, and a required return of 10%. The project NPV is:

Submitted: 1451 days and 23 hours ago.
Category: Finance
Value: $2
Status: AWAITING CUSTOMER ACTION

Answer

The OCF for the project is $13,250. There is no salvage value. The NPV is the PV of the OCF-initial investment. The OCF is an annuity so using the PVIFA table we get the factor as 3.791. The PV is 13,250X3.791=50,230.75. The NPV is 230.75

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Expert: vinsu
Pos. Feedback: 100.0 %
Accepts: 
Answered: 12/1/2005

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MBA in Finance and Marketing

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