What is the npv of the given project

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Mayco, Inc. is considering the purchase of a new machine for $60,000. The machine will reduce manufacturing costs by $5,000 annually. Mayco will use the modified accelerated cost recovery system (MACRS) accelerated method (5-year asset) to depreciate the machine and expects to sell the machine at the end of its 6-year operating life for $10,000. The firm expects to be able to reduce networking capital by $15,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after six years. Mayea's marginal tax rate is 40%, and it uses a 12% cost of capital to evaluate projects of this nature.

What is the NPV of the project? What if the machine will be depreciated using straight line depreciation over 6 years what will be the NPV of the project?

Reference no: EM13851478

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