Tax on gain @35% =19,798 Net salvage value = Selling price - Tax=$65,000-$19,798=$45,202 Return of net working capital = $5,500 Additional year 3 cash flow = $45,202 + $5,500=$50,702 d. If the project's cost of capital is 12%, should the machine be purchased? Year Cash Flow Discount Factor Discounted cash flow 0 ($126,000) 1.000 ($126,000) 1 $42,518 0.893 $37,963 2 $47,579 0.797 $37,930 3 $85,628 0.712 $60,948 Cost of capital 12% NPV $10,841
Tax on gain @35% =19,798 Net salvage value = Selling price - Tax=$65,000-$19,798=$45,202 Return of net working capital = $5,500 Additional year 3 cash flow = $45,202 + $5,500=$50,702 d. If the project's cost of capital is 12%, should the machine be purchased? Year Cash Flow Discount Factor Discounted cash flow 0 ($126,000) 1.000 ($126,000) 1 $42,518 0.893 $37,963 2 $47,579 0.797 $37,930 3 $85,628 0.712 $60,948 Cost of capital 12% NPV $10,841