Answered step-by-stepI'm struggling to find the NPV for the below problem. I'm using the...
I'm struggling to find the NPV for the below problem. I'm using the equation given in class and its still unclear. What formula do i use to calculate and where does each data point relate to the formula? A detailed breakdown would greatly help me figure out how to do these in the future because we still have 10 weeks left of class! Any help would be much appreciated!
Consider the following data:
- A machine costs $300 today (year 0). Assume this investment is fully tax-deductible, as stipulated by the new US corporate tax code of 2018. - This company has current pre-tax profits from other projects that are greater than $300, so it can take full advantage of the investment tax break above in year 0.
- The machine will generate operating profits before depreciation (EBITDA) of $130 per year for 4 years. The first cash flow happens one year after the machine is put in place (year 1).
- Depreciation is not tax-deductible. Notice that you do not need to calculate depreciation at all to solve this problem since it has no effect on taxes. - The tax rate is 21%
- There is no salvage value at the end of the four years (the machine is worthless), and no required working capital investment.
Compute the NPV of the project if the discount rate is 9%. Please show your work below, not just the final answer
NPV =
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