• Compare two different machines using net present value.
  • Machine 1, New Tech
  • Machine 2, Standard Classic
• What are the correct Net Present Values for the two machines?
  • Use the Net Present Value excel formula.
• What is the Project Profitability Index for each machine?
• Which machine should I purchase? Why?
• Complete the "NPV Project Template" Excel for each machine.

Net Present Value Analysis Template
	Year	Year	Year	Year	Year	Year	Year
Cash Flows	0	1	2	3	4	5	6
Cost of Machine
Salvage Value of Machine
Working Capital
Total Contribution Margin
Total Other Fixed Costs
Yearly Maintenance Cost
Taxes on Income (except depreciation)
Tax Shield
Total Cash Flows
Discounted CF (Optional)
Net Present Value
Project Profitability Index

• New Tech Info

General Information:
Cost of Machine	$ 421,000
Useful Life (years)	6
Salvage Value	$ 50,000	At the end of 6 years
Working Capital	$ 95,000
Yearly Maintenance Cost	$ 30,000
Required Rate of Return	11%
Tax Rate	22%
Annual Straight Line Depreciation	$ (61,833)	(421000-50000)/6

Year	Total Contribution Margin
1	$300,000
2	$315,000
3	$380,000
4-6	$440,000

Year	Total Other Fixed Costs
1-2	$160,000
3	$150,000
4-6	$120,000

• Standard Classic Info

General Information:
Cost of Machine	$ 260,000
Useful Life (years)	6
Salvage Value	$ 15,000	At the end of 6 years
Working Capital	$ 53,000
Yearly Maintenance Cost	$ 72,000
Cost of Major Overhaul (Year 3)	$ 120,000
Required Rate of Return	11%
Tax Rate	22%
Annual Straight Line Depreciation	$ 40,833	(260,000-15000)/6

Year	Total Contribution Margin
1	$275,000
2	$290,000
3	$375,000
6-Apr	$420,000

Year	Total Other Fixed Costs
1-2	$160,000
3	$150,000
4-6	$120,000