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Suppose you are considering an investment of $1m in some high efficiency pumps that are expected to last 4 years. You face a tax rate of 40% and you use a discount rate of 10%. You expect that the pumps will have the effect of: Reducing the cost of fuel by $300,000 each year. The machine will be depreciated to $200,000 over the 4-year period. At the end of 4 years the machine will be scrapped. You expect that it will cost you $20,000 to dismantle and haul off the machine etc. You expect the machine to require the Net Working Capital to increase by $30,000 (take that to occur at date T=0) At the end of the 4 years the NWC is recovered. The investment of $1m will have to be made at T=0. Obtain the Free Cash Flows for each of the years (T=0 to T=4). What is the NPV of this investment?

Suppose you are considering an investment of $lm in some high efficiency pumps that are expected to last 4 years. You face a tax rate of 40% and you use a discount rate of 10%. You expect that the pumps will have the effect of: Reducing the cost of fuel by $300,000 each year. The machine will be depreciated to $200,000 over the 4-year period. At the end of 4 years the machine will be scrapped. You expect that it will cost you $20,000 to dismantle and haul off the machine etc. You expect the machine to require the Net Working Capital to increase by $30,000 (take that to occur at date T=0) At the end of the 4 years the NWC is recovered. The investment of $lm will have to be made at T=0. Obtain the Free Cash Flows for each of the years (T=0 to T=4). What is the NPV of this investment

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