Kinky Copies may buy a high-volume copier. The machine costs $100,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in (after-tax) labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm's tax rate is 21%, and the discount rate is 8%. (Assume the net working capital will be recovered at the end of Year 5.) What is the NPV of this project?
Kinky Copies may buy a high-volume copier. The machine costs $100,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in (after-tax) labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm's tax rate is 21%, and the discount rate is 8%. (Assume the net working capital will be recovered at the end of Year 5.) What is the NPV of this project?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Kinky Copies may buy a high-volume copier.
The machine costs $100,000 and this cost
can be fully depreciated immediately. Kinky
anticipates that the machine actually can
be sold in 5 years for $30,000. The machine
will save $20,000 a year in (after-tax) labor
costs but will require an increase in working
capital, mainly paper supplies, of $10,000.
The firm's tax rate is 21%, and the discount
rate is 8%. (Assume the net working capital
will be recovered at the end of Year 5.)
What is the NPV of this project?
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