Assume you have been asked to evaluate an investment in capital equipment for the production of biofuels. The machine will cost $215,000 and it will last 10 years (useful and depreciation lifespans). Using straightline depreciation, the salvage value for the investment is $0. You expect the equipment to have a terminal value of $20,000 at the end of the investment period.
The machine has an annual maintenance cost of $6,000. Your marginal tax rate is 30%; remember that you get to keep (1m) for everything other than the depreciation shield on an aftertax basis (it’s simply m * depreciation shield). Your after taxcost of capital (discount rate) is 9.5%. Labor costs in the production of biofuels are $17,500/year. The machine will produce 25,500 units of biofuel annually that will be sold at $2.50/unit.
Fill in the missing pieces (a through h) in the table below to complete the NPC analysis
Item 
Pretax 
Aftertax 
Time 
Growth Rate 
Discount Rate 
P.V. Factor 
Present Value 
Machine 
$215,000 
$215,000 
0 
– 
0.095 
1.0 
$215,000.00 
Depr. Shield 
21,500 

110 
0 
0.095 


Term.Value^{a} 
20,000 

10 
0 
0.095 

$5,649.20 
Repairs 
6,000 

110 
0 
0.095 


NPV 






$195,223.51 
NPC 






$195,223.51 
 Aftertax annual amount = PV(i/(1(1+i)^{n})) = 1/(PV Factor).
You will need the following formulas to complete the table: [1(1+i)^{n}]/i; (1+r)^{n};
Hint: Aftertax cost of repairs is calculated exactly the same as the aftertax terminal value.
Do NOT worry about number formatting (i.e. just type in the number), but DO round all answers to two (2) places to the right of the decimal.