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St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new...

St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $24,000 to $56,000 per year. The new machine will cost $87,500, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 18%. The old machine has been fully depreciated and has no salvage value.

What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.
$

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Answer #1
NPV 32236.58
Year Cost of new
machine		 Tax shield-
depreciation		 Incremental EBD
after tax		 Net CF
0 -87500 21875 -65625
1 24000 24000
2 24000 24000
3 24000 24000
4 24000 24000
5 24000 24000
6 24000 24000
7 24000 24000
8 24000 24000

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