Question

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3.08 million and will last for six years. Variable costs are 32% of sales, and fixed costs are $2,096,978 per year. Machine B costs $5.06 million and will last for nine years. Variable costs for this machine are 23% of sales and fixed costs are $1,422,105 per year. The sales for each machine will be $6.1 million per year. The required return is 7 %, and the tax rate is 38%. Both machines will be depreciated to zero on a straight-line basis. Each project will require an increase in inventory of $365,239, an increase in accounts receivable of $673,577, and an increase in accounts payable of $433,907. Assume a salvage value of $727,468 for both machines.

Calculate the NPV for machine B

Answer 1