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  3. 18.) cash flows estimation and capital budgeting:

18.) Cash flows estimation and capital budgeting: You are the head of finance department in...

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Finance

18.) Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machines base price is $11,000.00, and it would cost another $2,570.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net working capital (inventory) of $860.00. The new machine would not change revenues, but it is expected to save the firm $26,235.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 36.00%. If the project's cost of capital is 13.25%, what is the NPV of the project?

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