NOTE THIS IS MY SECOND TIME POSTING THIS SAME QUESTION AN AN

NOTE: THIS IS MY SECOND TIME POSTING THIS SAME QUESTION. AN ANSWER OF $164,280.91 WAS SUBMITTED PREVIOUSLY AND WAS WRONG.

Solution

0 1 2 3 4 5 Annual pre-tax savings 230000 230000 230000 230000 230000 Depreciation 110000 176000 105600 63360 63360 Incremental NOI 120000 54000 124400 166640 166640 Tax at 34% 40800 18360 42296 56658 56658 Incremental NOPAT 79200 35640 82104 109982 109982 Add: Depreciation 110000 176000 105600 63360 63360 Incremental OCF 189200 211640 187704 173342 173342 Capital expenditure 550000 -72151 Change in NWC 28000 3300 3300 3300 3300 -41200 Annual project cash flows -578000 185900 208340 184404 170042 286694 PVIF at 9% 1 0.91743 0.84168 0.77218 0.70843 0.64993 PV at 12% -578000 170550 175356 142394 120462 186331 NPV 217093 After tax salvage value of the machine: Salvage value 93000 Book value 31680 Gain 61320 Tax on gain at 34% 20849 After tax salvage value of the machine: 72151 YES, the company should buy and install the machine.