Question

Calculating Project NPVPaul Restaurant is considering the purchase of a $9,300 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,400 soufflés per year, with each costing $1.97 to make and priced at $4.95. The discount rate is 14 percent and the tax rate is 21 percent. Should the company make the purchase? Please help by BAii plus not excel sheet

Answer 1

Annual depreciation = 9,300 / 5

Annual depreciation = 1,860

Revenue = 1400 * 4.95 = 6,930

Cost = 1,400 * 1.97 = 2,758

Operating cash flow from year 1 to year 5 = (Revenue - costs-depreciation)(1 - tax) + depreciation

Operating cash flow from year 1 to year 5 = (6,930 - 2,758 - 1,860)(1 - 0.21) + 1,860

Operating cash flow from year 1 to year 5 = 1,826.48 + 1,860

Operating cash flow from year 1 to year 5 = 3,686.48

Now we use financial calculator:

Keys to use in a financial calculator:

CF0 -9300, press ENTER and down arrow key

C01 3,686.48, press ENTER and down arrow key

F01 5, Press ENTER and down arrow key

press NPV, enter I as 14

Click CPT

Your answer should be $3,355.98

Company should make the purchase as it has a positive NPV

If you need more clarifications, put it in comments