Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Madison Technologies is considering change in its method of delivery. In order to do this, equipment would need to be purchased at a cost of

Madison Technologies is considering change in its method of delivery. In order to do this, equipment would need to be purchased at a cost of $1,250,000 plus an additional $85,000 for shipping and installation. Madison believes that after 6 years, this equipment can be sold for $240,000. The company would need to increase its working capital by $150,000. The increase in revenue from this change is expected to be $600,000 per year with related operating costs of $320,000 per year and depreciation expense of $222,500 per year for 6 years. Madison is in the 30% tax bracket and its WACC is 9.5%.

1. What is the initial outlay for this project?

2. What are the annual recurring after-tax cash flows for this project?

3. What are the terminal cash flows for this project? Do not include Year 6 operating cash flows.

4. Should Madison change to the new delivery method? Why or why not?

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

Financial Management Theory And Practice

Authors: Prasanna Chandra

9th Edition

9339222571, 978-9339222574

More Books

Students also viewed these Finance questions

Question

Create a Fishbone diagram with the problem being coal "mine safety

Answered: 1 week ago