Mississippi River Shipyards is considering the replacement of an 8-year-old rive
ID: 2752382 • Letter: M
Question
Mississippi River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $44,000 per year. The new machine will cost $80,000, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period; so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 20%. The old machine has been fully depreciated and has no salvage value.
What is the NPV of the project? Round your answer to the nearest cent.
Explanation / Answer
Answre : NPV of Project
Year Earning (A) Depreciation (B) TAX C = (A-B) *40% Cash Inflow (D) =(A-C) PV 20% (E) Present value of cash inflow (F) =(D*E) 1 44000 16000 11200 32800 0.833 27322.40 2 44000 25600 7360 36640 0.694 25428.16 3 44000 15200 11520 32480 0.579 18805.92 4 44000 9600 13760 30240 0.482 14575.68 5 44000 8800 14080 29920 0.402 12027.84 6 44000 4800 15680 28320 0.335 9487.20 7 44000 0 17600 26400 0.279 7365.60 8 44000 0 17600 26400 0.233 6151.20 Total Present Value 121164.00 Less Initial Investment 80000.00 NPV of project 41164.00