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Project Evaluation using NPV for Kinky Copies

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Project Evaluation
Kinky Copies may buy a high-volume copier. The machine costs $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 working capital, mainly paper supplies, of $10,000.
The firm's marginal tax rate is 35%, and the discount rate is 8 %. Should Kinky buy the machine?

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Solution Summary

The solution evaluates the project (buying a high-volume copier) for Kinky Copies using Net Present Value (NPV) in Excel.

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PROJECT EVALUATION

Kinky Copies
Purchase of a high volume copier

Project Evaluation
Kinky Copies may buy a high-volume copier. The machine costs $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 working capital, mainly paper supplies, of $10,000.
The firm's marginal tax rate is 35%, and the discount rate is 8 %. Should Kinky buy the machine?

Machine Cost $100,000
Depreciate straight line 5 years
Salvage value ...

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