Blue Sky Corporation is evaluating the proposed acquisition of a new production machine. The machine's base price is $260,000, and installation costs would amount to $10,000. An additional $10,000 in net working capital would be required at installation. The machine has a class life of 2 years. The machine would save the firm $225,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the firm plans to sell the machine for $80,000. The firm has a required rate of return on investment projects of 10 % and a marginal tax rate of 21%. What is the NPV of the project? O $138,190 O $104,705 $139,926 O $169,627
Blue Sky Corporation is evaluating the proposed acquisition of a new production machine. The machine's base price is $260,000, and installation costs would amount to $10,000. An additional $10,000 in net working capital would be required at installation. The machine has a class life of 2 years. The machine would save the firm $225,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the firm plans to sell the machine for $80,000. The firm has a required rate of return on investment projects of 10 % and a marginal tax rate of 21%. What is the NPV of the project? O $138,190 O $104,705 $139,926 O $169,627
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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Question
![Blue Sky Corporation is evaluating the proposed acquisition of a new production
machine. The machine's base price is $260,000, and installation costs would amount to
$10,000. An additional $10,000 in net working capital would be required at installation.
The machine has a class life of 2 years. The machine would save the firm $225,000 per
year in operating costs. The firm is planning to keep the machine in place for 2 years. At
the end of the second year, the firm plans to sell the machine for $80,000. The firm has
a required rate of return on investment projects of 10 % and a marginal tax rate of 21%.
What is the NPV of the project?
O $138,190
O $104,705
$139,926
O $169,627
$138,190](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F27ac2307-e83a-4c8a-ab85-9e57d244f8d6%2F3ef7529e-dd05-4b80-b692-b02a2b1db453%2Fs0rclzn_processed.png&w=3840&q=75)
Transcribed Image Text:Blue Sky Corporation is evaluating the proposed acquisition of a new production
machine. The machine's base price is $260,000, and installation costs would amount to
$10,000. An additional $10,000 in net working capital would be required at installation.
The machine has a class life of 2 years. The machine would save the firm $225,000 per
year in operating costs. The firm is planning to keep the machine in place for 2 years. At
the end of the second year, the firm plans to sell the machine for $80,000. The firm has
a required rate of return on investment projects of 10 % and a marginal tax rate of 21%.
What is the NPV of the project?
O $138,190
O $104,705
$139,926
O $169,627
$138,190
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