Use the Information for the Question(s) Below

question 46

Essay

Use the information for the question(s) below.
Kinston Industries is considering investing in a machine that will cost $125,000 and will last for three years. The machine will generate revenues of $120,000 each year and the cost of goods sold will be 50% of sales. At the end of year three the machine will be sold for $15,000. The appropriate cost of capital is 10% and Kinston is in the 35% tax bracket.
-Assume that Kinston's new machine will be depreciated using MACRS according to the following schedule:
What is the NPV of this project?

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Definitions:

Return On Equity

A financial ratio indicating the profitability of a firm in relation to its shareholders' equity, measuring how much profit is generated from the equity.

Return On Equity

calculates the amount of net income returned as a percentage of shareholders equity, measuring a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Common Stock

A form of equity security signifying an ownership stake in a company, granting the holder the right to participate in voting on corporate issues and to earn dividends.

Market Price

The present rate at which a service or asset is available for purchase or sale on an open market.