Bill wants to purchase a machine to help improve the quality of the product his company manufactures. The information needed to answer this question is provided below:
INFORMATION NEW MACHINE:
Purchase Price $200,000.00
Estimated Life 4 YEARS
Use Straight Line Depreciation Method
Estimated Salvage Value $20,000.00
Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes)
End of Year 1 $60,000.00
End of Year 2 $80,000.00
End of Year 3 $80,000.00
End of Year 4 $90,000.00
ASSUMPTIONS:
Working Capital Addition $40,000
Tax Rate 40%
WACC Rate 10%
Based on this information calculate the NPV if Bill decides to purchase the new machine. Round your answer to the nearest whole number and do not include dollar signs or commas. (20123.34 would be entered as 20123) If the amount is negative, include a "-" sign (-20123)
You can use the Simple Capital Purchasd Excel spreadsheet as an example. You will need to modify the spreadsheet since this question is based on a 4 year life asset, not a 5 year life.
2.Based on the correct calculation, Bill
A) should not buy this machine since the NPV is negative and the company would not be getting a sufficient return.
B) should buy this machine since the NPV is positive and the company would getting a sufficient return above the required amount.