Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Help on this homework question. with explanation please. Wrecks Construction Company is considering the purchase of a new machine for $500,000. The purchase of this
Help on this homework question. with explanation please.
Wrecks Construction Company is considering the purchase of a new machine for $500,000. The purchase of this machine will result in an increase in earnings before taxes of S 150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after tax. In addition, it would cost $5,000 after tax to install this machine correctly. Also, management has determined an increase of $30,000 in net working capital will be necessmy.. This machme has an expected life of 10 years after which it will have a salvage value of $15,000. Assume simplified straight-line depreciation, that this machine has been depreciated down to zero, a 20% marginal tax rate, and required rate of return of 15%. Use the techniques as discussed in our class. 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 10? c.) What is the terminal cash flow in your 10? d.) Evaluate the acquisition of this project using net present value, profitability index, and internal rate return. Should this purchase take place? Why or why not?
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