NPV

Raphael Restaurant is considering the purchase of a $10,000 souffle maker. The souffle maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 2,000 souffles per year, with each costing $2 to make and priced at $5. Assume that the discount rate is 17 percent and the tax rate is 34 percent. Should Raphael make the purchase? Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,400,000 in annual sales, with costs of $960,000. The tax rate is 35 percent and the required return is 15 percent. What is the project’s NPV?