Question - Clara's Custom Curtains Inc. is considering the purchase of a new high-tech sewing machine. The machine will have an initial cost of$ 15,000 and an estimated salvage value of $1,000 at the end of its useful life. The company expects annual net operating cash inflows to increase $2,000 in the first year and $4,000 for each of the next five years. The company has a cost of capital of 12 percent.
Required:
A. If the company ignores income taxes, compute the net present value of the machine.
B. If the company takes into account income taxes using a 40 percent income tax rate, and the machine will be depreciated over it six-year life using the straight-line method, compute the net present value.