Acme Toy Company is considering the purchase of a machine for their production line.
Information on the purchase is shown below.
a. Calculate the initial outlay associated with the project.
b. What is the annual after tax cash flows for years 1-9?
c. What is the terminal cash flow in year 10?
d. Should the machine be purchased?
Purchase Information:
1. Cost of machine is $3 million dollars.
2. Expected increase in EBIT $750000.
3. Training costs for new machine - $250,000.
4. Increase in inventory for new parts - $350,000
5. Salvage value of machine - $300,000
6. Expected life of machine - 10 years, use straight line depreciation.
7. Tax Rate - 30%
8. Required Rate of Return - 12%