Question
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.
- What is the initial outlay (year 0) associated with the equipment? (3 points)
- What are the annual after-tax cash flows associated with the equipment for years one through six? (3 points)
- 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)
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