Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of...

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Dickinson Brothers, Inc., is considering investing in a machineto produce computer keyboards. The price of the machine will be$975,000, and its economic life is five years. The machine will befully depreciated by the straight-line method. The machine willproduce 20,000 keyboards each year. The price of each keyboard willbe $40 in the first year and will increase by 5 percent per year.The production cost per keyboard will be $15 in the first year andwill increase by 6 percent per year. The project will have anannual fixed cost of $195,000 and require an immediate investmentof $25,000 in net working capital. The corporate tax rate for thecompany is 34 percent. If the appropriate discount rate is 11percent, what is the NPV of the investment?

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Calculation of NPV of investment Year 0 1 2 3 4 5 NPV Investment in Machine 975000 Increase in net working capital 25000 Operating cash flow 267600 282120 297247 313005 329417 Net Cash flow 1000000 267600 282120 297247 313005 329417 X Discount factor 11 100000 090090 081162 See Answer

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Dickinson Brothers, Inc., is considering investing in a machineto produce computer keyboards. The price of the machine will be$975,000, and its economic life is five years. The machine will befully depreciated by the straight-line method. The machine willproduce 20,000 keyboards each year. The price of each keyboard willbe $40 in the first year and will increase by 5 percent per year.The production cost per keyboard will be $15 in the first year andwill increase by 6 percent per year. The project will have anannual fixed cost of $195,000 and require an immediate investmentof $25,000 in net working capital. The corporate tax rate for thecompany is 34 percent. If the appropriate discount rate is 11percent, what is the NPV of the investment?