Question

Overnight Laundry is considering the purchase of a new pressing machine that would cost $111,360 and would produce incremental operating cash flows of $29,000 annually for 10 years. The machine has a terminal value of $6,960 and is depreciated for income tax purposes using straight-line depreciation over a 10-year life (ignore the half-year convention). Overnight Laundry's marginal tax rate is 33.3%. The company uses a discount rate of 18%.

What is the net present value of the project?

Answer #1

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Builtrite is considering purchasing a new machine that would
cost $60,000 and the machine would be depreciated (straight line)
down to $0 over its five year life. At the end of five years it is
believed that the machine could be sold for $15,000. The current
machine being used was purchased 3 years ago at a cost of $40,000
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zero (i.e., no salvage value), over 5 years, beginning the first
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