2.

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:

(Cashflows at the) END OF YEAR

0 1 2 3 4 5 6 7 8

(404,424.00) 86,890.00 106,474.00 91,612.00 84,801.00 84,801.00 75,400.00 66,000.00 92,400.00

What is the project’s net present value if the required rate of return is 14 percent? Is the
project acceptable?
This Model is prepared by Rajib Dahal. If you need excelsheet calculation, please contact me at my email at rajib.dahal@nu.edu.kz/rajib.dahal@gmail.com. This problem is taken from Chapter 13 Capital Budgeting Techniques, Part V:
Investment in Capital Assets, Self-Correction Problems at Page No. 346 from the book "Fundamentals of financial management by James C. Van Horne and John M Wachowicz".

Discount factor 1.00 0.88 0.77 0.67 0.59 0.52 0.46 0.40 0.35
Discounted Cash flow - 404,424.00 76,219.30 81,928.29 61,835.49 50,209.00 44,042.98 34,351.23 26,376.06 32,391.66
NPV 2,930.00

Since NPV is positive, the project should be acceptable.