Question
Custom Candies is considering the purchase of equipment, which will allow the company to launch chocolate covered almonds as a new product offering. The equipment
Custom Candies is considering the purchase of equipment, which will allow the company to launch chocolate covered almonds as a new product offering. The equipment costs $54,000 to purchase and $6,000 to install; all these costs will be capitalized and depreciated over 4 years using straight-line depreciation and a salvage value of $10,000. The new product will generate $58,000 in revenue annually. Annual costs include the following: Costs of goods sold will be $18,000, operating costs will be $8,000 and depreciation will be $12,500. The firm is in the 26% income tax bracket. The firm's cost of capital is 11%. Calculate the relevant cash flows the will be used as inputs into the DCF model - Project Initiation Cash Flows, Annual Project Operating Cash Flows, and Project Disposal Cash Flows.
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