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I am struggling with this problem. I need to create a pro format financial statement for this assignment and calculate its Net present value. The
I am struggling with this problem. I need to create a pro format financial statement for this assignment and calculate its Net present value.
The Company is considering purchasing a new glazing machine that has an estimated life of five years. The cost of the machine is $1.500.000 and the machine will be depreciated straight line over its five-year life to a residual value of $100,000. The glazing machine will result in sales of 500 services in year 1. Sales are estimated to grow by 20% after first year and gradually decline to 5% over the life of the machine. The price per service is $2.000 each and is expected to increase by 2% every year. The service cost is $1,000 per service and is also expected to increase by 2% per year. The fixed cost for the entire operation is $100.000 per year. Installation of the machine and the resulting increase in the operation will require an investment of $80,000 in net working capital immediately and an increase in various net working capital. The company has routinely hold 2% of its annual sales in cash, 4% of its annual sales in accounts receivable. 9% of its annual sales in inventory, and 6% of its annual sales in accounts payable. The firm is in the 30% tax bracket and has a cost of capital of 10%Step by Step Solution
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