Question about NPV
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Creighton Industries is considering the purchase of a new strapping machine, which will cost $120,000, plus an additional $7,500 to ship and install. The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method. The machine is expected to generate new sales of $25,000 per year and is expected to save $17,000 in labor and electrical expenses over the next 5-years. The machine is expected to have a salvage value of $30,000. Creighton uses a 13.5% discount rate for capital budgeting purposes and the firm's income tax rate is 40%. What is the machine's NPV?
a) $8,888
b) $5,062
c) $12,153
d) $25,000
e) $4,500
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Solution Summary
Attached is the answer with the calculation sheet.
Education
- Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
- Bachelor of Commerce, West Bengal University
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