Your company is purchasing a new machine to make toys. The machine costs $1,866,000 today and will be depreciated straight-line over 5 years to a salvage value of $100,000. You anticipate that the machine can be sold in 5 years for $169,000. The machine will allow your company to increase its production and associated revenues by $1,374,000 each year. The incremental yearly cost of goods sold for these additional widgets is $588,000, and the incremental SGA expense associated with selling these toysis $142,000 per year. The new machine will require an initial one-time increase in working capital, mainly raw material inputs, of $93,000. The working capital will be recaptured at the end of the project in 5 years. The firm’s marginal tax rate is 31% and the discount rate is 5%. What is the NPV of the project?
Your company is purchasing a new machine to make toys. The machine costs $1,866,000 today and will be depreciated straight-line over 5 years to a salvage value of $100,000. You anticipate that the machine can be sold in 5 years for $169,000. The machine will allow your company to increase its production and associated revenues by $1,374,000 each year. The incremental yearly cost of goods sold for these additional widgets is $588,000, and the incremental SGA expense associated with selling these toysis $142,000 per year. The new machine will require an initial one-time increase in working capital, mainly raw material inputs, of $93,000. The working capital will be recaptured at the end of the project in 5 years. The firm’s marginal tax rate is 31% and the discount rate is 5%. What is the
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