Elom nusk the cfo of eslat company believes that his company...

Elom Nusk, the CFO of Eslat Company, believes that his company should purchase a new machine priced at $3000. The new piece of machinery, which will be purchased today, has a useful life of 10 years, at the end of which, the machine will be deemed worthless. The company uses straight line depreciation for all there asset purchases. Nusk expects the machine to generate $5700 in cash flows per year and incur $3450 in expenses per year, starting a year from today and continue for the remainder of the asset life. Assuming the company's tax rate is 35%, what is the net present value of the machine, assuming the company has a required rate of return is 7%, Project NPV $

Transcript

00:01 We need to calculate net present value, which is npv for this first.

00:06 We need to find the cash flows for each year.

00:10 So let's talk about year 0.

00:13 So cash flow will be initial fixed investment, which is minus 23 lakh dollar for year 1 cash flow will be operating income minus excess.

00:29 So operating income we need to calculate for which we found 980 9 lakh 80 thousand dollar minus 2 lakh 15 thousand six hundred dollar.

00:45 So we got cash flow here seven lakhs.

00:48 Sixty four thousand four hundred dollar as you are to know the how to calculate the operating income the annual sales minus annual cost and taxes are operating income multiplied by tax rate.

01:00 So easily we can found it.

01:02 Now we can use the same process for year 2 also.

01:07 Here i provide the formula operating income.

01:11 We need to calculate like by annual sales minus annual cost.

01:19 This is the first thing you need to calculate and second texas are operating income multiplied by tax rate.

01:27 So for this easily you can found it.

01:30 Now we calculate for year 2 cash flow.

01:32 So operating income will be nine lakh 80 thousand minus excess are also 2 lakh 15 thousand six hundred.

01:47 Now we got the same amount also here.

01:49 Seven lakhs.

01:50 Sixty four thousand four hundred for year 2.

01:54 Now, let's move towards the year 3 for year 3.

02:00 So again, she can operating income will be same nine lakh 80 thousand dollar minus texas are also same, which is two lakh 15 thousand six hundred dollars.

02:13 So again, our cash flow is same seven lakhs...

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