Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Calculating project cash flows and NPV. URGENT. PLEASE HELP. (Caiculating projoct eash flows and NPY). Woir's Truding, the, is considering the purchase of a new

Calculating project cash flows and NPV. URGENT. PLEASE HELP.
image text in transcribed
(Caiculating projoct eash flows and NPY). Woir's Truding, the, is considering the purchase of a new production machine for $110,000. The purchaso of this new machine wil result in an ineres in earrings before interest and taves of $26,000 per yoar. To operate this machine properly, workers would have to go through a briof training session that would cosi $4,750 ater tax. In addicion would coot $5,500 after tax to install this machine coerectly. Also, because this machine is extremely efficiont, ite purchaso would necessitate an incroase in inventary of $26,000. Th/s machine ha an expected ite of 10 years, afeer which it witt have no salvage value. Finally, to purchase the new machine, it appears that the firm would have to bociow $50,000 at 10 percent interest from its ioc tank resulting in additonal interest payments of 55,000 per yeat. Assume simpiffed straght-fine depreciation, that this machine is being deprecisted down to zoro, a 38 percert marginal tax rale, and a required rate of retum of 15 percent. a. What is the intial outlay associated with this project? b. What are the annual after-tax eash flows associaled with this projoct for yoars 1 throigh 9 ? c. What is the terminal cash flow in year 10 (that is, the annual after tax cash fow in year 10 plus any additional cash fows associased with terminaten of the project?? d. Should this machine be purchasod? a. The initial cash cuttay associated with this project is \$ (Round to the nearest dolac.) b. The anenal alter-tax cash flows associated with this project lor years 1 through 9 are 1 (Round to the nearest dolar) c. The terminal cash fow in year 10 (the anmal after-tax cach flow in yesr 10 plus ary additional cash flow associaled weh sermination of the project) is 5 (Round to the nearest dotac). d. Given the intormation, the machine (Select the best choice below.). A. should not bo purchased because the NPV is $1,430, msking it an unacoeptable investment for the company. B. showid be purchased because the NPV is $1.430, makng it a worthwile investrient for the company

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

Handbook Of The Economics Of Finance

Authors: George M. Constantinides, Milton Harris, Rene M. Stulz

1st Edition

044459406X, 978-0444594068

More Books

Students also viewed these Finance questions

Question

Why is a scattergraph useful?

Answered: 1 week ago

Question

b. What groups were most represented? Why do you think this is so?

Answered: 1 week ago