1.
(ignoreincometaxes)AxillarBeautyproductscorpisconsideringtheproductionofanew
conditioningshampoothatwillrequirethepurchaseofnewmixingmachinery.Themachinerywillcost
$375,000,isexpectedtohaveausefullifeof10years,andisexpectedtohaveasalvagevalueof$50,000
attheendof10years.Themachinerywillalsoneeda$35,000overhaulattheendofyear6.A40,000
increaseinworkingcapitalwillbeneededforthisinvestmentproject.Theworkingcapitalwillbe
releasedattheendofthe10years.Axillarsdiscountrateis16%.
Required:
a- whatisthenetpresentvalueofthisinventmentopportunity?
Year
0
1
2
3
4
5
6
7
8
9
10
NPV
Netcash
flows
$415,000
Discountingfactor
$85,000
$85,000
$85,000
$85,000
$85,000
$50,000
$85,000
$85,000
$85,000
$175,000
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
1
Present
value
$415,000.00
$73,275.86
$63,168.85
$54,455.90
$46,944.74
$40,469.61
$20,522.11
$30,075.51
$25,927.16
$22,351.00
$39,669.63
$1,860.38
b- Basedontheanswerabove,shouldAxillargoaheadwiththenewconditioningshampoo?
AsNPVispositive,Axillarcangoaheadwiththenewconditioningshampoowhichwillrequirethepurchaseof
newmixingmachinery.