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 $34875. Employees will have to be trained to use the new machines, at the cost of $26290. With the increased production, accounts payable will go up by $44942, inventory by $45102, and accounts receivable by $63310 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 $625231 per year in each of the next 5 years. The company expects to sell the machines after five years for $413946. The companys tax rate is 20% and its cost of capital is 12%. Compute terminal cashflow
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