Gerry Corporation would like to expand the production of one of its product lines to enter into

Question:

Gerry would like to expand the production of one of its product lines to enter into a new geographic market. To provide sufficient capacity, Gerry will need to purchase a new machine at a cost of $200,000. The new machine will have an estimated useful life of 10 years, with no expected ; however, for purposes of income tax depreciation, the machine qualifies as 7-year property. The historical demand for the product is normally distributed. Management believes that future demand will also be normally distributed and independent from one period to another. The expected value of the annual demand for the product produced by the new machine is 4,000 units with a standard deviation of 1,750 units. The from the sale of the product is $14 per unit; however, to expand production, Gerry will need to incur additional fixed expenditures for marketing and production in the total amount of $8,100 per year. Gerry's weighted-average is 12%, and the company is in the 40% income tax bracket.
Required:
(1) Determine the expected value of the periodic after-tax net cash flows and the after-tax cash flow value of the periodic standard deviation.
(2) Determine the expected of the machine.
(3) Determine the variance and the standard deviation of the expected of the machine.
(4) Compute the coefficient of variation for the capital expenditure proposal.
(5) Determine the probability that the from this machine will be greater than zero. Contribution Margin
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