Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Calculating project cash flows and NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine The purchase of this machine will

image text in transcribed
(Calculating project cash flows and NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine The purchase of this machine will result in an increase in earnings before interest and taxes of $75,000 per year The machine has a purchase price of $200,000, and it would cost an additional $6,000 after tax to install this machine correctly in addition to operate this machine properly, inventory must be increased by $18,000. This machine has an expected life of 10 years, after which time it will have no salvage value. Also assume simplified straight line depreciation, that this machine is being depreciated down to zero, a 35 percent marginal tax rate, and a required rate of return of 13 percent a. What is the initial outlay associated with this project? b. What are the annual after tax cash flows associated with this project for years 1 through 92 c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plus any additional cash flow associated with termination of the project) d. Should this machine be purchased? a. The initial cash outlay associated with this project is $(Round to the nearest dollar)

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

Step: 3

blur-text-image

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

Essentials Of Health Care Finance

Authors: William O. Cleverley, Andrew E. Cameron

6th Edition

0763742368, 978-0763742362

More Books

Students also viewed these Finance questions