Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

General Mills recently purchased a machinery to manufacture a new line of cereal. The new machine has a cost of $100,000 and is expected to

image text in transcribed
General Mills recently purchased a machinery to manufacture a new line of cereal. The new machine has a cost of $100,000 and is expected to generate after tax cash flows including depreciation of 20,000 per year. The truck has a four year expected life. The expected year end abandonment Values (Salvage Value after tax adjustments) for the machine are given below. The company's cost of capital is 10%. Calculate the optimal economic life of the project. Year OCF Abandonment Value 0 (75000) 1 25,000 43750 N 25,000 35000 3 25,000 27500 4 25,000 12500 5 25,000 0 A) All five years B) Four years C) Three years D) 2 years E) 1 year

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_2

Step: 3

blur-text-image_3

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

More Books

Students also viewed these Finance questions