Jubilee Corporation is considering the purchase of a new machine costing 100000. Sales tax on the machine is 6%. Freight costs to have the machine delivered will be $1000. Installation and setup costs will be an additional $3000.

1. What is the net present value of the initial investment?

This machine has a useful life of 5 years. IF the new machine is purchased pretac cash flows are as follows

year Inflow outflow

1 40500 18000

2 50400 27000

3 44100 22500

4 40500 20700

5 37200 18000

Jubilees cost of capital is 10% and its tax rate is 30%.

2. Calculate the after tax net present value of the estimated cash flows.