Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please solve 1-4 in EXCEL! will upvote once all done. thank you in advance!! A company is considering the purchase of a new machine that
please solve 1-4 in EXCEL! will upvote once all done. thank you in advance!!
A company is considering the purchase of a new machine that will enable it to increase its expected sales. The machine will have a price of $100,000. In addition, the machine must be installed and tested. The costs of installation and testing will amount to $10,000. The machine will be depreciated using 3-years MACRS. (Use MACRS table from class excel exercise by copying the table and pasting it) The equipment will be operated for 5 years. The sales in the first year of operation are expected to be $260,000. Then, sales will grow by 3% a year. The annual operating costs (before depreciation) will consist of fixed operating costs of $25,000 plus variable operating costs equal to 70% of sales. To support the increased level of production, the inventory of raw materials will have to be increased from $30,000 to $50,000 when the machine is purchased. The additional inventory will be carried until the machine is scrapped following the 5 years of operation. At the end of the 5-year operating life of the project, it is assumed that the equipment will be sold for $40,000. The tax rate is 40% and the company's weighted average cost of capital is 9%. Build a capital budgeting model to answer the following questions: 1) What is the operating cash flow in year 1-5? 2) What is the initial outlay in year 0 ? 3) What is the after tax salvage at the terminal year? 4) Calculate NPV and PI for the project. Check points: NI in year 2=$3,834 IRR=26.73% Step 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