Question
cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your
cash flows estimation and capital budgeting:
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The nash flows estimation and capital budgeting:
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machines base price is $10,300.00, and it would cost another $2,920.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net working capital (inventory) of $880.00. The new machine would not change revenues, but it is expected to save the firm $34,665.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 35.00%.
If the project's cost of capital is 15.00%, what is the NPV of the project?
What is the initial cash outlay?
b. What are the free cash flow for year 1?
c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital also called terminal value)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started