Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Mills Mining is considering the purchase of additional equipment. The proposed project has the following features: The equipment has an invoice price of exist390,000 and
Mills Mining is considering the purchase of additional equipment. The proposed project has the following features: The equipment has an invoice price of exist390,000 and will cost exist40,000 to modify for company use. Shipping will cost 10,000. The company spent exist10,000 last year analyzing 5 competing brands of equipment before deciding that this brand was the best for their purposes. The equipment will be depreciated as a 3-Year MACRS asset with the following rates: Year 1 - 33%, Year 2-45%, Year 3 15%, and Year 4-7%. If the project is undertaken, the company will need an increase in net working capital of exist40,000. This not working capital will be recovered at the end of the project's three year life. If the project is undertaken, the company will realize an additional exist500,000 in sales over each of the next three years. The company's operating costs (excluding depreciation) will be exist200,000 higher over each of the next three years. If the project is undertaken, old equipment that has been fully depreciated can be sold for exist20,000. If the project is not undertaken, the old equipment will last 3 more years, at which time its salvage value will be zero. The company's tax rate is 40 percent. At the end of year three, the equipment will have a salvage value of exist90,000. When conducting a net present value (NPV) analysis of this project, the cash flow for the final year (year 3), including the terminal year cash flows, will be equal to: A. exist306, 400 B. exist318.720 C. exist312, 720, exist266.400
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