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1 . Riker Chrome Plating is considering the purchase of a new chemical bath to improve its production efficiency. Relevant information about the purchase follows:

1. Riker Chrome Plating is considering the purchase of a new chemical bath to improve its production efficiency. Relevant information about the purchase follows:
Cost (including installation) $550,000
Useful life 8 years
Annual pre-tax cost savings $160,000
Salvage value $20,000
Depreciation method Straight-line
Unrecoverable initial net working capital $7,000
Unrecoverable net working capital per succeeding year $2,400
Variable cost 15% of annual pre-tax cost savings
Fixed cost $25,000
Riker has a tax rate of 22 percent and its discount rate is 9 percent.
a. Prepare a schedule showing the after-tax cash flows that are associated with the purchase over its useful life. Assume, with the exception of the net working capital requirement in the terminal year, all cash flows occur at the end of each year.
b. Compute the return that will be earned if the purchase is made.
2. In working on a bid project, you have determined that $318,000 of fixed assets will be required and that they will be depreciated straight-line to zero over the 6-year life of the project. You have also determined that the discount rate should be 18 percent and the tax rate will be 35 percent. In addition, the annual cash costs will be $198,200. After considering all of the projects cash flows you have determined that the required operating cash flow is $92,400. Compute the amount of annual sales revenue required.

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