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A company making plastic car parts buys new molding machines to expand its production capacity. The machines cost 51.8 million, with additional charges for delivery
A company making plastic car parts buys new molding machines to expand its production capacity. The machines cost 51.8 million, with additional charges for delivery and installation totaling $70,000. Employees will have to be trained to use the new machines, at the cost of $10,000. With the increased production, accounts payable will go up by $30,000, inventory by $80,000, and accounts receivable by 560,000 at the outset. These changes in the working capital will be recaptured at the end of the project's life of 7 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 $1.2 million and the costs including depreciation, by $600,000 per year in each of the next 7 years. The company expects to sell the machines after seven years for $200,000. The company's tax rate is 20% and its cost of capital is 10.65%. Compute the cash flow for year 1 . This is cash inflow, not outhow, This is a very short HW. A. 890,000 B. 678,000 C. 667,000 D. 800,000
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