Please answer solution on an excel sheet (showing formulas) for full credit. Onl
ID: 2623660 • Letter: P
Question
Please answer solution on an excel sheet (showing formulas) for full credit. Only answer if you are 100% certain.
A firm is considering purchasing a machine that cost $65,00. It will used for six years, and the salvage value at that time is expected to be zero. The machine will save $35,000 per year in labor, but it will incur $12,000 in operations and maintenance costs each year. The machine will depreciated according to five-year MACRS. The form's tax rate is 25%, and its MARR is 15%. The data block and income statement are shown below. Prepare a cash flow statement for this proposal Should the machine be purchased?Explanation / Answer
a)Cash flow = EBIT*(1-tax) + Depreciation
b)NPV of the project = -65000 + 20500.15/1.15 + 22450.24/1.15^2 + 20370.14/1.15^3+ 19122.09/1.15^4 + 19122.09/1.15^5 + 18186.04/1.15^6=$11,498.02
NPV is positive and therefore machine should be purchased
Year 0 1 2 3 4 5 6 Initial cost -65000 Revenue 35000 35000 35000 35000 35000 35000 Operating costs -12000 -12000 -12000 -12000 -12000 -12000 Depreciation % 20% 32% 19.20% 11.52% 11.52% 5.76% Depreciation -13000 -20800 -12480 -7488 -7488 -3744 EBIT 10000.2 2200.32 10520.19 15512.12 15512.12 19256.06 Net Income 7500.15 1650.24 7890.144 11634.09 11634.09 14442.04 Free Cash flows -65000 20500.15 22450.24 20370.14 19122.09 19122.09 18186.04