Answers
1.
Option IV
2.
=113000+13000+7500=133500
3.
=(60000-(113000+13000)*33%)*(1-35%)+(113000+13000)*33%=53553
4.
=(60000-(113000+13000)*45%)*(1-35%)+(113000+13000)*45%=58845
5.
Case 1: Annual cash flows does not include other cash flows
=(60000-(113000+13000)*15%)*(1-35%)+(113000+13000)*15%=45615
Case 2: Annual cash flows includes other cash flows
=(60000-(113000+13000)*15%)*(1-35%)+(113000+13000)*15%+7500+62150-(62150-(113000+13000)*7%)*35%=96599.50
6.
NPV=-(113000+13000+7500)+((60000-(113000+13000)*33%)*(1-35%)+(113000+13000)*33%)/1.08+((60000-(113000+13000)*45%)*(1-35%)+(113000+13000)*45%)/1.08^2+((60000-(113000+13000)*15%)*(1-35%)+(113000+13000)*15%+7500+62150-(62150-(113000+13000)*7%)*35%)/1.08^3=43220.0115581974
As NPV is positive, purchase the machine
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