Kinky Copies may buy a high-volume copier. The machine cost $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm's marginal tax rate is 35 percent, and the discount rate is 8 percent. Should Kinky buy the machine?© BrainMass Inc. brainmass.com December 15, 2022, 8:11 pm ad1c9bdddf
Please refer attached file for better clarity of tables.
Depreciation= (Price of machine-Salvage Value)/No. of years = (100000-20000)/5=$16000.
At the end Machine Savings Depreciation Tax Net Cash flow Extra cash Total cash PV=FV/1.08^n
of Year Cost Flow* Flow (FV) (@Rate=8%)
0 -100000 ...
Solution describes working of steps needed to determine whether a project is acceptable or not by using NPV method.