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Spacely Sprockets is considering increasing its production of sprockets at its Orbit City plant. You have been provided the following pieces of information on this
Spacely Sprockets is considering increasing its production of sprockets at its Orbit City plant. You have been provided the following pieces of information on this ten year project.
- The expansion will require the purchase of machinery costing $50,000,000.
- The firm has spent $750,000 to train workers to use the new machinery. If the project is accepted, the firm expects to spend an additional $350,000 in training costs payable today (t=0).
- The sales from this project will be $20,000,000 per year. The operating expenses (excluding depreciation) equal $11,000,000.
- The company uses straight-line depreciation. The project has an economic life of 10 years and the machinery has a salvage value of $8,000,000.
- Because of the project, the company will need additional net working capital of $300,000, which can be liquidated at the end of ten years.
- Spacelys marginal tax rate is 40%.
- Spacelys cost of capital (WACC) is 10%.
- The projects cash flow in year 9 is $ ________.
- The projects cash flow in year 10 is $ ________.
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