The Net present value (npv) of buying the new lathe -$349,773.33
Operating cash flow is equal to [(Revenues - Cash Expenses) divided by (1 - Tax Rate)]. + ($0 - ($35,000 - 125,000) (1 - 0.35)] - (Tax rate Depreciation) + {0.35 × [($1m - 100,000) / 10]} =$90,000
NPV = Cost of the new machine - (OCF - Annuity Factor) - PV of the sale price - PV of the sales tax = $1 million + $90,000 - ((1 / 0.08) - ([0.08(1 + 0.08)10]) + ($100,000 / 1.0810) - [0.35 ($100,000 - 100,000)] / 1.0810 = -$349,773.33
The difference between the current value of cash inflows and withdrawals over a period of time is known as net present value (NPV). To evaluate the profitability of a proposed investment or project, NPV is used in investments and capital budgeting.
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