Spend 100000 on Machine C. You will need 5000 more in net working capital. C is three year MACRS. The cost of funds is 8% and the tax rate is 40%. C is expected to increase revenues by 45000 and costs by 7000 for each of the next three years. You think you can sell C for 10000 at the end of the three year period.
Find the year zero cash flow. (-105000)
Find the depreciation for each year on the machine. (33300; 44450; 14810; 7410)
Find the depreciation tax shield for the three operating years. (13332, 17780, 5924) What is the projects contribution to operations each year, ignoring depreciation effects. (22800)
What is the cash flow effect of selling the machine? (8964)
Find the total CF for each year. 0: (105000) 1: 36132 2: 40580 3: 42688
Should you buy it (NPV=-2866.52, NO)
PLEASE SHOW WORK