Assume your firm will consist of just one machine. The machine costs $126,000 and has a physical life of 10 years. Tax laws require that it be depreciated over 7 years, using straight-line depreciation. The machine produces $50,000 a year in sales and requires cash expenses of $15,000 a year. All sales are cash sales, and your firm's marginal tax rate is 40%. Your overall cost of capital is 14% a year, and this is the appropriate rate at which to discount both the before-tax project cash flows and the cash flows to Uncle Sam. Your firm has $80,000 of debt at an interest rate of 10% a year. Your first interest payment is due in year 1. Your last interest payment and the principal on the debt are due in year 10.
-Refer to the information above. Calculate the NPV of the project.

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The Answer of Assume your firm will consist of just one machine. The machine costs $126,000 and has a physical life of 10 years. Tax laws require that it be depreciated over 7 years, using straight-line depreciation. The machine produces $50,000 a year in sales and requires cash expenses of $15,000 a year. All sales are cash sales, and your firm's marginal tax rate is 40%. Your overall cost of capital is 14% a year, and this is the appropriate rate at which to discount both the before-tax project cash flows and the cash flows to Uncle Sam. Your firm has $80,000 of debt at an interest rate of 10% a year. Your first interest payment is due in year 1. Your last interest payment and the principal on the debt are due in year 10.
-Refer to the information above. Calculate the NPV of the project.

Assume Your Firm Will Consist of Just One Machine