Question 1. The Blackmeadows Steel Company (BSC) is considering Investing in a new machine that costs $250,000. However, due to rapid changes in business, it has been planned that this machine will be used for only three years. After three years, it will be sold for $200,000 (constant dollars). Depreciation: The machine falls into the MACRS seven-year class. Year 1 2 3 4 5 6 7 8 Depreciation 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% Rate Financing: BSC decides to obtain $120,000 of the investment through debt financing at 9% annual interest payable in equal installments over three years. Income and Expenses: The new machine will generate a before-tax annual revenue of $120,000 (constant dollars). It costs $55,000 (constant dollars) to operate the machine each year. Working Capital: BSC has to incur $100,000 today for working capital requirements. The working capital will be fully recovered at the end of three years. Taxes: Ordinary income is taxed at 34%. Capital gains is taxed at 40%. Rates: The company's inflation free MARR is 11%. The general inflation rate during the scope of the investment is estimated to be 4%. Useful formula: i = i' + +i'i a) (17 pts.) Fill in the income and cash flow statements below. b) (4 pts.) What is the after-tax net present worth of this investment? Should the company invest in this project? c) (4 pts. Based on your answer to part (b), determine either a lower bound or an upper bound to the five IRR of this project. d) (5 pts.) What is the cost of having working capital? (Single Payment) (Equal Payment) [(1 + ) se 30+8tar ner ileen latihan (Equal Payment) ((1+0) P=1 ((1+) Question 1. The Blackmeadows Steel Company (BSC) is considering Investing in a new machine that costs $250,000. However, due to rapid changes in business, it has been planned that this machine will be used for only three years. After three years, it will be sold for $200,000 (constant dollars). Depreciation: The machine falls into the MACRS seven-year class. Year 1 2 3 4 5 6 7 8 Depreciation 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% Rate Financing: BSC decides to obtain $120,000 of the investment through debt financing at 9% annual interest payable in equal installments over three years. Income and Expenses: The new machine will generate a before-tax annual revenue of $120,000 (constant dollars). It costs $55,000 (constant dollars) to operate the machine each year. Working Capital: BSC has to incur $100,000 today for working capital requirements. The working capital will be fully recovered at the end of three years. Taxes: Ordinary income is taxed at 34%. Capital gains is taxed at 40%. Rates: The company's inflation free MARR is 11%. The general inflation rate during the scope of the investment is estimated to be 4%. Useful formula: i = i' + +i'i a) (17 pts.) Fill in the income and cash flow statements below. b) (4 pts.) What is the after-tax net present worth of this investment? Should the company invest in this project? c) (4 pts. Based on your answer to part (b), determine either a lower bound or an upper bound to the five IRR of this project. d) (5 pts.) What is the cost of having working capital? (Single Payment) (Equal Payment) [(1 + ) se 30+8tar ner ileen latihan (Equal Payment) ((1+0) P=1 ((1+)
