Homework for Finance 3309 Capital Budgeting - Part 1 Wednesday , November 28 by 9 AM - Upload an original or scanned document to Canva FOR FULL CREDIT , PLEASE show your work in a professional manner for credit Label cash flows , uses signs , and the like ) . You should show your cash flows using the steps and approach used by me in c in class ( 20 pts ) Tremont Designs is considering replacing one of its machines . The current equipment was purchased I 5 years ago , and its installed cost was $225 000 . At that time it was estimated to have a useful Ilife of 10 years when The machine is being depreciated using the simplified straight line method and its market value today is $10 , 000 . Six full-time machine operators are required to operate the machine . Each is paid a $40,000 annual salary . The existing machine creates about $20 , 000 worth of defects per year , and costs $5 000 per year to maintain The proposed machine costs $390 , 000 requires the company to spend $30 , 090 for shipping and installation If purchased , it will be depreciated to a zero book balance using straight line depreciation over its 5 - year expected useful life . Though the firm does not expect revenues to increase with the new machine , the newer model is more efficient and less labor intensive . As a result only three machine operators are required , the cost of defects would drop to $8 000 per year , and maintenance would now reach $12 090 annually . Green expects to the proposed new machine to have a $64 , 010 market value at the end this time . The firm's tota marginal tax rate - both state and federal - is 21% . With relation to the cash flows associated with this replacement , what is / are the a . Initial outlay associated with this project ? b . Annual after - tax cash flows associa iated with this project ( OCFS ) , for years 1 through 4 ? Total Terminal year cash flow in year 5 ?120 pts ) Shark Attack , Inc . must analyze the feasibility of a new piece of equipment that has an estimated ibility Id like yo useful life of 8 years , and the firm would like your help to make this decision . The firm plans to depreciate the equipment to a zero book value using straight line depreciation . The purchase price of the equipment is $500 , 000 and it will cost another 10 percent of this price to ship and properly install In addition to safely operate the equipment , workers will require an extensive training session that will cost nearly $8 000 . The firm has estimated that to begin using the machine , it will need to invest $70 000 in inventories . At the same time accounts payable will increase by $35 , 000 . At the end of its life , Shark Attack hopes to sell the machine to a smaller competitor for $1 12 000 The company expects revenues attributable to the new machine to be $375 ,000 each year before tax addition , cash operating expenses related to the new production process are expected to reach 38 percent of sales annually . Shark's marginal tax rate is 21% . What are the after-tax cash flows associated with this proposed project ? The initial outlay ? OCFS in years 1 -7 ? Terminal year cash flows in year 8
