What is the project npv

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Dolphin Plastics is considering replacing molding equipment used to make party cups. The current equipment was purchased two years ago for $95,000. At the time of purchase it had a 7-year life with an expected salvage value of $10,000. If sold today Dolphin expects to receive $55,000 for the machine. Dolphin depreciates all assets using straight-line depreciation. Dolphin currently has revenue of $700,000 that is expected to grow at 5% per annum. Dolphin currently has a gross profit margin of 17%.New machinery today will cost $145,000. The new machinery is expected to last 5 years and has a salvage value of $15,000.

The new machinery will lower annual operating costs by $5,000 per annum. In addition, the new machine is expected to increase expected revenue (shown below) and increase the firm's gross profit margin to 19%.

Year 1 120,000

Year 2 130,000

Year 3. 140,000

Year. 4 125,000

Year. 5 125,000

Assume a tax rate of 25% and a cost of capital of 11%. What is the project's NPV.

Reference no: EM133069804

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