Question
A company plans to purchase a piece of machinery for $500,000. It has a life of 3 years and a salvage value of $100,000. In
A company plans to purchase a piece of machinery for $500,000. It has a life of 3 years and a salvage value of $100,000. In addition, the company expects to have to make an investment of $50,000 in Net Working Capital to operate the equipment, which will be recovered at the end of the project. As a result of this investment, the company expects to increase its revenues by $125,000 per year and its variable expenses are 40% of revenues.
The firm has a 35% tax rate and its discount rate is 12% and the machinery has a CCA rate of 10% (d = 10%). (Round your answers to the nearest dollar.)
- What are the cash flows of capital in this project?
- What are the after-tax revenues-expenses cash flow in this project
- Calculate the Net Present Value of the investment in the machinery.
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