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jdawg
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Homework Statement
Ellen wants to expand her factory with a $8500 addition. It will increase revenue by $7,000 per year, and only increase costs by $1,000. The $8500 consists of $2900 for a building and $5600 for machinery. US depreciation rules apply. The income tax rate is 35%. Based on her discount rate of 14%, what is Ellen's net present value for the first nine years of the investment?
Homework Equations
The Attempt at a Solution
When I worked this problem I just ignored the depreciation... Can someone please explain to me how to incorporate depreciation into this problem?
Here is what I did in excel:
Revenue Net Disc Rate Income Tax Taxes Profit PV
$0 (-$8,500) 14% 35% -$8,500.00
$7,000 $6,000 14% 35% $2,100 $3,900 $5,263.16
$7,000 $6,000 14% 35% $2,100 $3,900 $4,616.81
$7,000 $6,000 14% 35% $2,100 $3,900 $4,049.83
$7,000 $6,000 14% 35% $2,100 $3,900 $3,552.48
$7,000 $6,000 14% 35% $2,100 $3,900 $3,116.21
$7,000 $6,000 14% 35% $2,100 $3,900 $2,733.52
$7,000 $6,000 14% 35% $2,100 $3,900 $2,397.82
$7,000 $6,000 14% 35% $2,100 $3,900 $2,103.35
$7,000 $6,000 14% 35% $2,100 $3,900 $1,845.05
NPV: $21,178.23