Solved: Net present value of purchasing the new coffee machines, Finance Basics

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Net present value of purchasing the new coffee machines

Question:

Coffee Company can buy new coffee machines for $4,500,000. The coffee machines will have a useful life of 10 years and have no salvage value. It is expected the coffee machines will produce a before tax profit of $1,200,000 per year. Assuming straight line depreciation is used, a tax rate of 45% and a cost of capital of 10% what is the Net Present Value (NPV) of purchasing the new coffee machines?

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Finance Basics: Net present value of purchasing the new coffee machines

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Finance Basics: Net present value of purchasing the new coffee machines

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