Anchor Ltd paid $$15,000$ last quarter for a feasibility study regarding the demand for motor$-$

boat replacement parts which would require the purchase of a new metal$-$shaping machine.

Today, they wish to conduct an analysis of the proposed project.

The machine costs $$250,000$ and will operate for five years and tax rules allow the machine to

be depreciated to zero over a five$-$year life. The machine is expected to produce sales of

$$135,000$ annually for the five years. Anchor has already agreed to sell the machine in five

years$$ time to an unrelated firm for $$80,000.$

The project will result in a $$35,000$ increase in accounts receivable and require an increase in

inventory levels by $$20,000$ to $$95,000.$ Anchor has negotiated with its bank to borrow

$$180,000$ to help pay for the project. Loan repayments are $$48,000$ each year for five years.

If Anchor buys the machine they will be able to use some equipment that they currently own.

This is part of the driving force in the decision$-$making process because it allows the company

to save cash and not pay for new equipment. The after$-$tax value of the equipment today is

$$44,100.$ This machinery has been written off for tax purposes and would be worthless in five

years$$ time.

What are the relevant cash flows for each year of the new machine$$s life? Assume the

company tax rate is $30\%$

Correct answer is year $0=-349,100$ year $1-4=109,500$ year $5=220,5000$