Flatte Restaurant is considering the purchase of a $10,700 soufflé maker. The so

Question

Flatte Restaurant is considering the purchase of a $10,700 soufflé maker. The soufflé maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 2,350 soufflés per year, with each costing $2.75 to make and priced at $5.60. Assume that the discount rate is 14 percent and the tax rate is 40 percent.  

Yes

Please show your work. Thank you

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Calculation of NPV

As the NPV is positive, company should make the purchase.

Years Cash Inflows Depreciation Profit Tax @ 40% PAT Depre. CFAT PVF@ 14% PV 1 6695.50 2675 4022.5 1609 2413.5 2675 5088.5 0.877 4462.61 2 5088.5 0.769 3913.06 3 5088.5 0.675 3434.74 4 5088.5 0.592 3012.39 Toal 14,822.8 Initial Investment 10,700 NPV 4,122.80

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