Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A firm is considering the purchase of a new machine at a price of $135,000. The machine falls into the three-year MACRS class. If the

image text in transcribed
image text in transcribed
A firm is considering the purchase of a new machine at a price of $135,000. The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's investment in net working capital will immediately increase by $10,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $16,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with respect to the new machine: Year 1: EBDIT = $58,000 Year 2: EBDIT = $75,000 Year 3: EBDIT = $85,000 The firm is subject to a 21 percent tax rate and the firm's discount rate is 9 percent. Requirement 4: What is the net cash flow of the project for each of the following years? (Do not round intermediate calculations. Net cash outflows should be indicated by a minus sign. Round your answers to the nearest whole dollar (e.g., 32).) Year 0 Cash Flow $ 1 2 3 Requirement 5: What is the NPV of the project? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Principles And Applications

Authors: Sheridan Titman, John Martin

14th Global Edition

1292349824, 978-1292349824

More Books

Students also viewed these Finance questions