The Newport Company is planning to expand its current spindle product line. The required machinery would cost $630,000. The building that will house the new production facility would cost $0.9 million. The land would cost $340,000, and $290,000 working capital would be required. The product is expected to result in additional sales of $815,000 per year for 10 years, at which time the land can be sold for $480,000, the building for $500,000, and the equipment for $50,000. All of the working capital will be recovered. The annual disbursements for labor, materials, and all other expenses are estimated to be $385,000. The firms income tax rate is 40%, and any capital gains will be taxed at 35%. The buildings will be depreciated according to a 39-year property class. The manufacturing facility will be classified as a seven-year MACRS. The firms MARR is known to be 15% after taxes.

Determine the projected net after-tax cash flows from this investment. Is the expansion justified?

Compare the IRR of this project with that of a situation with no working capital.

The MACRS depreciation schedules for personal properties with half-year convention, declining-balance method 20 150% 3.750 7.219 6.677 lass Depreciation 200% 150% 200% 20.00 32.00 19.20 11.52 11.52 5.76 200% 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 200% 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 Year n 33.33 44.45 14.81 7.41 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 4 5.713 5.285 4.888 4.522 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 6 10 12 15 16 17 18 19 20