Question
A company making plastic car parts buys new molding machines to expand its production capacity. The machines cost $3000000, with additional charges for delivery and
A company making plastic car parts buys new molding machines to expand its production capacity. The machines cost $3000000, with additional charges for delivery and installation totaling $31079. Employees will have to be trained to use the new machines, at the cost of $22381. With the increased production, accounts payable will go up by $44743, inventory by $42325, and accounts receivable by $66076 at the outset. These changes in the working capital will be recaptured at the end of the projects life of 5 years. The depreciable life of the machines is 10 years, and the company uses straight-line depreciation. The increased production will increase the sales revenue by $2000000 and the costs ,including depreciation, by $662756 per year in each of the next 5 years. The company expects to sell the machines after five years for $455656. The companys tax rate is 20% and its cost of capital is 14%. Compute terminal cashflow.
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