Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Matacho SA ( ltd ) has an opportunity to pursue a capital budgeting project with a 5 year - year time horizon. This can be
Matacho SAltd has an opportunity to pursue a capital budgeting project with a yearyear time horizon. This can be implemented in the area that is most profitable to increase the machine hours by machine hours. After careful study, Matacho SAltd estimated the following costs and revenues for the project:
Cost of new equipment needed R
Installation of new equipment R
Sale of old equipment no longer needed R
Working capital needed R
Equipment maintenance in Year R
Annual revenues and costs:
The new piece of equipment mentioned above has a useful life of years and will be written of over years. At the end of years the equipment will be converted to $ cash as scrap value.
The old piece of equipment mentioned in the table above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Matacho SALtd uses the straightline depreciation method for financial reporting and tax purposes.
The companys tax rate is and its after tax cost of capital is
When the project concludes in five years, the working capital will be released.
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