Synlex Inc. is considering the purchase of a new machine for $600,000. It would cost $4,000 to install the machine. It would necessitate an increase of net working capital 120,000 at the initial time. It will result in an increase of sales revenue by $210,000 and an increase of maintenance cost by $40,000 per year. The machine has an expected life of 10 years, after which it will have salvage value of $50,000. Assume straight-line depreciation and the machine is being depreciated down to zero. The marginal tax rate is 40% and the required rate of return is 10%.

Required

a. Calculate the machines initial investment.

b. Calculate the operating cash flows over the machines life.

c. Is it favorable for Synlex Inc. to purchase the machine?

(PVIFA 10%, 10 =6.1446; PVIFA 10%, 9=5.7590; PVIF 10%, 10 = 0.3855)

d. What other elements should Synlex consider in deciding whether to make this investment?