Smith's Machine Shop had an initial market study performed at a cost of $2,000 on the feasibility
Question:
Smith's Machine Shop had an initial market study performed at a cost of $2,000 on the feasibility of expanding sales into a nearby city.To do so, a new machine would need to be purchased for $12,000.Delivery transportation costs would add $2,000 and installation costs would require $4,000 more.The machine has a useful life of 4 years and would produce annual incremental cash revenues of $8,000.Annual cash-operating expenses are expected to be $3,000. The machine will have zero salvage value and the company uses straight-line depreciation.The company has a 20% corporate income tax rate.These is no change expected in net working capital requirements with the project.All amounts given in the above narrative are pre-tax.The project team has already estimated annual Earnings Before Taxes (EBT) will be $500, which includes annual depreciation expense of $4,500.The project team calculated the present value of the annual after-tax operating cash flows over the useful life of the project to be $15,532 in total.Based on the above information, calculate the Net Present Value (NPV) of this project.
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr