Question
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
v
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of
$90,000
per year. The machine has a purchase price of
$150,000,
and it would cost an additional
$7,000
after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by
$20,000.
This machine has an expected life of
10
years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a
37
percent marginal tax rate, and a required rate of return of
8
percent.
a.What is the initial outlay associated with this project?
b.What are the annual after-tax cash flows associated with this project for years 1 through
9?
c.What is the terminal cash flow in year
10
(that is, the annual after-tax cash flow in year
10
plus any additional cash flow associated with termination of the project)?
d.Should this machine be purchased?
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The Complete Direct Investing Handbook
Authors: Kirby Rosplock
1st Edition
1119094712, 978-1119094715
