I have gone over this problem quite a few times now and I am not getting the right solution which is -$8,035.29. Does anyone know where I am veering off course? Thank you in advance!
Barton Company is planning to buy a machine that will cost $40,000. Barton will depreciate it uniformly over 5 years. The income tax rate of Barton is 30%. The pretax revenue from the machine for the first two years is $10,000 annually and for the next three years, $8000 annually. The discount rate for the project is 11%. Should Barton buy the machine?
Net Present Value = −$8035.29, no
C = E(1-t) + tD
C = 10,000(1-.30) + .3(8,000)
C = 10,000(.7) + 2,400
C = 7,000 + 2,400
C = 9,400 for first two years
C = 8,000(1-.3) + .3(8,000)
C = 8,000(.7) + 2,400
C = 5,600 + 2,400
C = 8,000 for next three years
NPV = -40,000 + 9,400(1-1.11^-2) / .11 + 8,000 / 1.11^3
NPV = -40,000 + 9,400(0.18837756675594513432351270189108) / .11 + 8,000 / 1.367631
NPV = -40,000 + 1770.7491275058842626410193977762 / .11 + 5849.5310504076026355062147611454
NPV = -40,000 + 16097.719340962584205827449070692 + 5849.5310504076026355062147611454
NPV = -18052.75