Editing SKN Breweries management is contemplating the purchase of equipment that would increase productive capacity. The...
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Editing SKN Breweries management is contemplating the purchase of equipment that would increase productive capacity. The initial outlay required for the purchase is $5,000,000. The life of the equipment is expected to be ten years with no salvage value. The expected after-tax cash flows are expected to be: Cash expenses Year Cash revenues 1 $1,500,000 $750,000 2 1,750,000 750,000 3 2,500,000 1,000,000 4 3,000,000 1,200,000 567 3,500,000 1,700,000 4,500,000 2,000.000 5,000,000 2,575,000 8 9 3,900,000 1,750,000 3,000,000 1,200,000 10 2,500,000 1,000,000 Required: (1) Compute the payback period (2) the net present value for the investment. Assume that the company requires a 10% rate of return. For each alternative advise whether the company should make the investment giving your reasons. (Hint: You must calculate and use the after-tax cash income). Editing SKN Breweries management is contemplating the purchase of equipment that would increase productive capacity. The initial outlay required for the purchase is $5,000,000. The life of the equipment is expected to be ten years with no salvage value. The expected after-tax cash flows are expected to be: Cash expenses Year Cash revenues 1 $1,500,000 $750,000 2 1,750,000 750,000 3 2,500,000 1,000,000 4 3,000,000 1,200,000 567 3,500,000 1,700,000 4,500,000 2,000.000 5,000,000 2,575,000 8 9 3,900,000 1,750,000 3,000,000 1,200,000 10 2,500,000 1,000,000 Required: (1) Compute the payback period (2) the net present value for the investment. Assume that the company requires a 10% rate of return. For each alternative advise whether the company should make the investment giving your reasons. (Hint: You must calculate and use the after-tax cash income).
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