Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please include calculator keystrokes or formulas 10. MBA Corp is considering whether to expand widget production. This would require the purchase of a new widget-producing
please include calculator keystrokes or formulas
10. MBA Corp is considering whether to expand widget production. This would require the purchase of a new widget-producing machine at a cost of $5,400,000. The machine would produce 450,000 widgets per year during its useful life of three years, and would be depreciated for tax purposes at a rate of $1,800,000 per year. The machine would not have any salvage value. Expanding widget production would also require the use of a building that could otherwise be leased for $500,000 per year (Best to assume that the tenant/renter would pay at the end of each year). Working capital required for the new machine would be 12% of the next year's sales. Widget prices are $20 and are expected to remain stable. The materials and labor required to produce a widget cost $12, and these costs are also expected to remain stable. The corporate income tax rate is 30%. The discount rate is 6% per year. (16 points total) (a) Forecast the incremental cash flows resulting from the purchase of a widget machine on a year-by-year basis and draw them on a timeline. (b) Decide whether MBA Corp should go ahead with the purchase of the new machine. 10. MBA Corp is considering whether to expand widget production. This would require the purchase of a new widget-producing machine at a cost of $5,400,000. The machine would produce 450,000 widgets per year during its useful life of three years, and would be depreciated for tax purposes at a rate of $1,800,000 per year. The machine would not have any salvage value. Expanding widget production would also require the use of a building that could otherwise be leased for $500,000 per year (Best to assume that the tenant/renter would pay at the end of each year). Working capital required for the new machine would be 12% of the next year's sales. Widget prices are $20 and are expected to remain stable. The materials and labor required to produce a widget cost $12, and these costs are also expected to remain stable. The corporate income tax rate is 30%. The discount rate is 6% per year. (16 points total) (a) Forecast the incremental cash flows resulting from the purchase of a widget machine on a year-by-year basis and draw them on a timeline. (b) Decide whether MBA Corp should go ahead with the purchase of the new machineStep 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