Question: can you thoroughly explain how to solve this question using formulas not excel Problem 1 A company is considering replacing an old machine with a

can you thoroughly explain how to solve this question using formulas not excel
Problem 1
A company is considering replacing an old machine with a new one. The old machine is
completely depreciated and can be sold for $50,000 in the market. The company intends to sell
this machine if it is replaced.
The new machine costs $450,000. The replacement of the machine will require an increase in the
inventories by $250,000.
The new machine is going to be depreciated over 4 years to 0 salvage value.
The new machine will increase annual revenue by $170,000 in addition it will reduce annual
operating costs by $30,000.
This new machine can be sold for $100,000 in 4 years.
The projects life is 4 years. The companys tax rate is 30% and the cost of capital is 12%.
A) What is the CF0?
B) What is CF4(the cash flow to be used in NPV calculations)?
C) What is the NPV of the project?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!