Question
Problem 12-9 New project analysis You must evaluate a proposal to buy a new milling machine. The base price is $161,000, and shipping and installation
Problem 12-9 New project analysis
You must evaluate a proposal to buy a new milling machine. The base price is $161,000, and shipping and installation costs would add another $16,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $112,700. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $53,000 per year. The marginal tax rate is 35%, and the WACC is 10%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
A. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. $ ANSWER: 1815000,000
B. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Year 1 $ Year 2 $ Year 3 $
* JUST NEED SOLUTIONS TO B I GOT A CORRECT can you please bold answers Thanks!
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