Carbide Chemical Company is considering the replacement of two old machines with a new more

QUESTION

Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine. It has determined that the relevant after-tax incremental operating cash flows of this replacement proposal are as follows:END OF YEAR0123Cash flows$404,424$86,890$106,474$91,612END OF YEAR45678Cash flows$84,801$84,801$75,400$66,000$92,400What is the projects net present value if the required rate of return is 14 percent? Is the project acceptable?
NPV Year Cash flows PVF PVCF 0 ($404,424) 1.00000 ($404,424) 1 $86,890 0.87719 $76,219 2 $106,474 0.76947 $81,928 3 $91,612 0.67497 $61,835 4 $84,801 0.59208 $50,209 5 $84,801 0.51937 $44,043 6 $75,400 0.45559 $34,351 7 $66,000 0.39964 $26,376 8 $92,400

5056 $32,392 NPV $2,930 PVF = 1/(1+r)^n, where r is rate of interest and n is period PVCF = PVF x cash flows Since NPV is positive ($2,930), the project should be accepted.

ANSWER:

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