A manufacturing company is considering the acquisition of a new injection molding machine at a cost of
Question:
A manufacturing company is considering the acquisition of a new injection‐ molding machine at a cost of $110,000. Because of a rapid change in product mix, the need for this particular machine is expected to last only eight years after which time the machine is expected to have a salvage value of $10,000. The annual operating cost is estimated to be $8,000. The addition of this machine to the current production facility is expected to generate annual revenue of $60,000. The firm has only $70,000 available from its equity funds, so it must borrow the additional $40,000 required at an interest rate of 10% per year with repayment of principal and interest in eight equal annual amounts. The applicable marginal income tax rate for the firm is 40%. Assume that the asset qualifies for a seven‐year MACRS property classification.
(a) Determine the after‐tax cash flows.
(b) Determine the NPW of this project at MARR = 14%.
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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a and b Income Statement Revenues savings Expenses OM cost Depreciation Debt interest 10 Ta...View the full answer
