Question
A company is purchasing a new machine which will cost $130,000 with additional shipping costs of $5,000 and set up and installation costs of $12,000.
A company is purchasing a new machine which will cost $130,000 with additional shipping costs of $5,000 and set up and installation costs of $12,000. An additional $8,000 in Net Working Capital will be required. Project life is five (5) years. The project will increase revenues by $90,000 each year and operating costs will increase by $32,000 annually. The machine has a class life of seven (7) years and will be depreciated using the straight line method. The company will sell the machinery for $50,000 at the end of five years. The companys cost of capital is 12% and the marginal tax rate is 34%.
Compute the non-operational cash flows (sometimes called terminal cash flows) the company will receive from the sale of the machine.
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