Question: Company A is evaluating a project that involves the purchase of a $300,000 machine, which will last for three years and is expected to produce
Company A is evaluating a project that involves the purchase of a $300,000 machine, which will last for three years and is expected to produce 50,000 units per year. The sales price for each unit will be $44, and variable costs will be $30 per unit. The project will also incur fixed labor costs of $400,000 per year. It will require no additional investment in net working capital and is expected to have a salvage value of $80,000 in three years. The machine will be depreciated on a straight-line basis to a zero salvage value over its life. The tax rate is 40% and the discount rate is 13%.
Complete a table of the relevant cash flows for the project, and compute the NPV. Round
to the nearest dollar.
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