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(New project analysis) Raymobile Motors is considering the purchase of a new production machine for $450,000. The purchase of this machine will result in an
(New project analysis) Raymobile Motors is considering the purchase of a new production machine for $450,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $120,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $50,000 after taxes. It would cost $6,000 to install the machine properly. Also, because the machine is extremely efficient, its purchase would necessitate an increase in inventory of $20,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight-line depreciation and that this machine is being depreciated down to zero, a 35 percent marginal tax rate, and a required rate of return of 18 percent. a. What is the initial outlay associated with this project? b. What are the annual after-tax cash flows associated with this project for years 1 through 9? c. What is the terminal cash flow in year 10 (what is the annual after-tax cash flow in year 10 plus any additional cash flows associated with the termination of the project)? d. Should the machine be purchased
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