Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please format answer into a table Green House Tomato Company is considering the purchase of new processing equipment for $1,500,000, with an additional installation cost

Please format answer into a table

Green House Tomato Company is considering the purchase of new processing equipment for $1,500,000, with an additional installation cost of $18,000. The new equipment will result in earnings before interest and taxes of $450,000 per year, and to operate the equipment properly, workers would have to go through an initial training session costing the company $50,000. In addition, because the equipment is extremely efficient, its purchase necessitates an increase in inventory of $90,000. Assume the company uses straight-line depreciation, the equipment has an expected life of seven years, the equipment will have no salvage value, the marginal tax rate is 28 percent, and the company has a required rate of return of 12 percent.

For each of the final values calculated below, you must show all component numbers that comprise the final value.

  1. What is the initial outlay (year 0) associated with the equipment? (3 points)
  2. What are the annual after-tax cash flows associated with the equipment for years one through six? (3 points)
  3. What is the terminal cash flow in year seven? In other words, what is the annual after-tax cash flow in year seven? Do not forget any additional cash flows (inventory) associated with the termination of the equipment? (2 points)

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

Step: 3

blur-text-image

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

Entrepreneurial Finance Strategy, Valuation, And Deal Structure

Authors: Janet Smith, Richard Smith, Richard Bliss

1st Edition

0804770913, 9780804770910

More Books

Students also viewed these Finance questions