Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help! The Auto Alen Company is considering adding a robotic machine to its production line. Its base price is $1,500,000 and it would cost

image text in transcribedPlease help!

The Auto Alen Company is considering adding a robotic machine to its production line. Its base price is $1,500,000 and it would cost another $30,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $750,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $20,000. The machine would not change revenues, but it is expected to save the firm $600,000 per year in before-tax operating costs, mainly labor. The company's marginal tax rate is 40%. a. What is the Year-0 cash flow? (5 points) b. What are the net operating cash flows in Year 1, 2, and 3? (5 points) c. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? (5 points) d. If the project's cost of capital is 10%, should the machine be purchased (Using NPV, IRR, MIRR, and PI to analyze the project)? (5 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

Public Finance In Democratic Process Fiscal Institutions And Individual Choice

Authors: James M. Buchanan

1st Edition

0865972192, 978-0865972193

More Books

Students also viewed these Finance questions