Examine the impacts of these changes on NPV

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You need to evaluate the acquisition of a special purpose machine. The machine cost $600,000 it will be depreciated to a zero book value on a straight line basis over four years. The machine can be sold at the end of year 4 for $200,000. It will increase initial net operating working capital by $20,000 for parts ( none of this will be recovered). sales will increase by $100,000 per year due to faster production and it will save the firm $250,000 per year in costs. Tax rate is 40%. Cost of capital is 12%.

The firm is concerned about the amount of the cost savings and the selling price of the machine. The cost savings could be be as low as 210,000 per year or as high as 280,000 per year. The machine can be sold at the end of four years for only $150,000 or they could get as much is $275,000. Using an excel data table, examine the impacts of these changes on NPV.

Reference no: EM131975817

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