Spotless Cleaning Ltd wishes to evaluate an investment on a particular washing machine. In your role as consultant to the company you have collected the following information regarding this machine:     Washing Machine Purchase Price   9,800 Life   10 years Annual Maintenance cost    150 Expected Salvage Value    1,000 Once bought, this machine will be depreciated to zero over its life. The company's tax rate is 30%. The company has revenues that are not impacted by the choice of machine against which any losses for tax purposes can be offset. The cost of capital required to finance this project is 8% p.a. compounded annually. 1.What is the net cash flow of this washing machine investment at the start (in Year 0)? 2.What is the net cash flow of this washing machine investment in year 10?  3.Calculate the net present value of the investment opportunity to buy this washing machine

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
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Spotless Cleaning Ltd wishes to evaluate an investment on a particular washing machine. In your role as consultant to the company you have collected the following information regarding this machine:

 

 

Washing Machine

Purchase Price

  9,800

Life

  10 years

Annual Maintenance cost

   150

Expected Salvage Value

   1,000

Once bought, this machine will be depreciated to zero over its life. The company's tax rate is 30%. The company has revenues that are not impacted by the choice of machine against which any losses for tax purposes can be offset. The cost of capital required to finance this project is 8% p.a. compounded annually.

1.What is the net cash flow of this washing machine investment at the start (in Year 0)?

2.What is the net cash flow of this washing machine investment in year 10? 

3.Calculate the net present value of the investment opportunity to buy this washing machine.

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