Topsider Inc

Multiple Choice

Topsider Inc.is considering the purchase of a new leather-cutting machine to replace an existing machine that has a book value of R3,000 and can be sold for R1,500.The old machine is being depreciated on a straight-line basis, and its estimated salvage value 3 years from now is zero.The new machine will reduce costs (before taxes) by R7,000 per year.The new machine has a 3-year life, it costs R14,000, and it can be sold for an expected R2,000 at the end of the third year.The new machine would be depreciated over its 3-year life using the MACRS method.Assuming a 40 percent tax rate and a required rate of return of 16 percent, find the new machine's NPV.

A) -R2,822
B) R1,658
C) R4,560
D) R15,374
E) R9,821