# Cash flow and depreciation

1. Apr 23, 2012

24. You invest in a new machine costing 8,000 kroner. This machine is expected to
increase the firm’s cash flow before tax with 2,500 kroner in years 1 and 2, and
thereafter 3,500 kroner in years 3 and 4. Assume that the annual depreciation is
30% of the book value in the beginning of each year, and that the machine in its
final year will be depreciated to zero. Salvage value beyond dismantling costs is
negligible. The corporate tax rate is 40%.
What is the net present value of this investment if the required rate of return is
10%?
(a) NOK -378
(b) NOK 147
(c) NOK 409
(d) NOK 934
(e) I choose not to answer.

my strategy would be to find the depreciation values for every year, and add the product of these and the tax rate; and then add this to the "after tax" cash flow. i would then use all the cash-flow units, take the capital cost and find the NPV of the product. this did not work...
could someone show me how to do this?

=)

2. Apr 25, 2012

### nitsuj

what is the discount rate?