INFORMATION OLD MACHINE:

Original Purchase Price $ 550,000.00
Original Life 10 YEARS
Remaining Life 5 YEARS
Straight line depreciation in use
Salvage Value $ 50,000.00
Current Fair Market Value $ 260,000.00

INFORMATION NEW MACHINE A:

Purchase Price $895,000.00
Estimated Life 5 YEARS
Use Straight Line Depreciation Method
Estimated Salvage Value $ 10,000.00

Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes)

End of Year 1 $ 100,000.00
End of Year 2 $ 150,000.00
End of Year 3 $ 250,000.00
End of Year 4 $ 200,000.00
End of Year 5 $ 200,000.00

ASSUMPTIONS:

Tax Rate 40%

WACC Rate 7%

1. Calculate the NPV if you keep the old machine. (Round up to the nearest dollar amount. DO NOT use $, commas, or decimal points) (Example $23,345.50 is entered as 23346)

2. Calculate the NPV if you sell the old machine and buy new machine A. (Round up to the nearest dollar amount. DO NOT use $, commas, or decimal points) (Example $23,345.50 is entered as 23346)

3. What decision do you suggest?

A) Keep the old machine and do not buy the new machine.

B) Sell the old machine and buy the new machine.

4. List 3 risk factors that could change your answers above.