Clara's Custom Curtains Inc.is considering the purchase of a new high-tech sewing machine.The machine will have an initial cost of $15 000 and an estimated salvage value of $1000 at the end of its useful life.The company expects annual net operating cash inflows to increase $4000 each year for six years.The company has a cost of capital of 12 per cent.
Required:
A. If the company ignores income taxes, compute the net present value of the machine.
B. If the company takes into account income taxes using a 40 per cent income tax rate, and the machine will be depreciated over its six-year life using the straight-line method, compute the net present value.

Question

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The Answer of Clara's Custom Curtains Inc.is considering the purchase of a new high-tech sewing machine.The machine will have an initial cost of $15 000 and an estimated salvage value of $1000 at the end of its useful life.The company expects annual net operating cash inflows to increase $4000 each year for six years.The company has a cost of capital of 12 per cent.
Required:
A. If the company ignores income taxes, compute the net present value of the machine.
B. If the company takes into account income taxes using a 40 per cent income tax rate, and the machine will be depreciated over its six-year life using the straight-line method, compute the net present value.