Blue Sky Corporation is evaluating the proposed acquisition of a new production machine. The machine's base price is $260,000, and installation costs would amount to $10,000. An additional $10,000 in net working capital would be required at installation. The machine has a class life of 2 years. The machine would save the firm $225,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the firm plans to sell the machine for $80,000. The firm has a required rate of return on investment projects of 10% and a marginal tax rate of 21%. What is the NPV of the project?
Blue Sky Corporation is evaluating the proposed acquisition of a new production machine. The machine's base price is $260,000, and installation costs would amount to $10,000. An additional $10,000 in net working capital would be required at installation. The machine has a class life of 2 years. The machine would save the firm $225,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the firm plans to sell the machine for $80,000. The firm has a required rate of return on investment projects of 10% and a marginal tax rate of 21%. What is the NPV of the project?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 6P: New-Project Analysis
The Campbell Company is considering adding a robotic paint sprayer to its...
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Transcribed Image Text:Question 8
Blue Sky Corporation is evaluating the proposed acquisition of a new production
machine. The machine's base price is $260,000, and installation costs would amount to
$10,000. An additional $10,000 in net working capital would be required at installation.
The machine has a class life of 2 years. The machine would save the firm $225,000 per
year in operating costs. The firm is planning to keep the machine in place for 2 years. At
the end of the second year, the firm plans to sell the machine for $80,000. The firm has
a required rate of return on investment projects of 10% and a marginal tax rate of 21%.
What is the NPV of the project?
$138,190
O $104,705
O $139,926
$169,627
O $138,190
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