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it is very easy ,pls answer questions a-e thank you ! i will vote you positive. love you Question 4 (15 marks) Consider a hypothetical
it is very easy ,pls answer questions a-e thank you ! i will vote you positive. love you
Question 4 (15 marks) Consider a hypothetical economy in which there is NO tax. Zero Inc. is considering investing in a 6-year capacity expansion project. The project will require the replacement of an old machine by a more productive one. Information on the project are summarized as follows: 1) The new machine to be purchased at the beginning of the project is estimated to cost $3,000,000. In addition, installation and delivery will cost another $300,000. 2) The new machine will be fully depreciated on a straight-line basis over its 10-year economic life and is estimated to have a resale value of $1,800,000 at the end of the project. 3) The fully depreciated old machine can be sold for $400,000 at the beginning of the project. 4) The project is expected to increase the operating cash income by $600,000 in each of the following six years. 5) In addition, an initial investment of $500,000 in working capital is required today and $300,000 at the end of Year 4. The working capital will be fully recovered at the end of the project. 6) The cost of capital of the project is 15% per year. a) Compute the initial (net) investment expenditure of the project. (3 marks) b) Compute the present value of the operating cash income. (3 marks) c) Compute the present value of salvage value of the new machine. (2 marks) d) Calculate the present value of the fully recovered net working capital required for the project. (3 marks) Based on the net present value method, should the project be undertaken? Briefly explain. (4 marks)Step by Step Solution
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