flake center is considering purchasing new manufacturing equipment for 90000. the old network can be sold...

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flake center is considering purchasing new manufacturingequipment for 90000. the old network can be sold for 7000. the newnetwork will require additional working capital of 10000. itsanticipated eight-year life will generate additional client revenueof 40000 annually with operating costs, excluding depreciation, of20000. at the end of eight years, it will have a salvage value of9000 and return 8000 in working capital. taxes are notincluded.
1) if the company has a required rate of 12%, what is the netpresent value of the proposed investment?
2) assume taxes are 30%, what is the after-tax NPV of theproposed investment?

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Flake Centre
Particulars	Y0	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Total
Cost of new equipment	(90,000.00)	-	-	-	-	-	-	-	-	(90,000.00)
Salvage of old equipment	7,000.00	-	-	-	-	-	-	-	-	7,000.00
Additional working capital	(10,000.00)	-	-	-	-	-	-	-	8,000.00	(2,000.00)
Salvage of new equipment	-	-	-	-	-	-	-	-	9,000.00	9,000.00
Net Additional revenue	-	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	320,000.00
Net cash flows	(93,000.00)	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	57,000.00	244,000.00
PV factor at 12%	1.00	0.89	0.80	0.71	0.64	0.57	0.51	0.45	0.40
Present Value	(93,000.00)	35,714.29	31,887.76	28,471.21	25,420.72	22,697.07	20,265.24	18,093.97	23,021.34	112,571.61

NPV is $ 112,571.61

Flake Centre
Particulars	Y0	Y1	Y2	Y3	Y4	Y5	Y6	Y7	Y8	Total
Net Additional revenue	-	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	40,000.00	320,000.00
Less: Depreciation	-	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	160,000.00
Taxable Revenue	-	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	160,000.00
Tax at 30%	-	6,000.00	6,000.00	6,000.00	6,000.00	6,000.00	6,000.00	6,000.00	6,000.00	48,000.00
After-tax Revenue	-	14,000.00	14,000.00	14,000.00	14,000.00	14,000.00	14,000.00	14,000.00	14,000.00	112,000.00
Add: Depreciation	-	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	20,000.00	160,000.00
Net Operating cash inflows	-	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	272,000.00
Cost of new equipment	(90,000.00)	-	-	-	-	-	-	-	-	(90,000.00)
Salvage of old equipment	7,000.00	-	-	-	-	-	-	-	-	7,000.00
Additional working capital	(10,000.00)	-	-	-	-	-	-	-	8,000.00	(2,000.00)
Salvage of new equipment	-	-	-	-	-	-	-	-	9,000.00	9,000.00
Net cash flows	(93,000.00)	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	34,000.00	51,000.00	196,000.00
PV factor at 12%	1.00	0.89	0.80	0.71	0.64	0.57	0.51	0.45	0.40
Present Value	(93,000.00)	30,357.14	27,104.59	24,200.53	21,607.61	19,292.51	17,225.46	15,379.87	20,598.04	82,765.77

NPV is $ 82,765.77

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