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For this question start fresh, do not carry over data from earlier questions. You are...

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Finance

For this question start fresh, do not carry over data from earlier questions. You are analyzing the prospects of installing cost saving machinery. You have the following information:

The machine costs $96,000. Depreciation is calculated straight line (equal amounts) over 4 years.

Every year the machine increases cash flows by an amount 34,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)

After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000.

This, therefore, is a 3 year project. The rate of discount is 9% The tax rate is 40%. (Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.) What is the NPV of installing the machinery?

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