Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A firm is considering the purchase of a new machine at a price of $270,000. The machine falls into the three-year MACRS class. If the

image text in transcribed
image text in transcribed
A firm is considering the purchase of a new machine at a price of $270,000. The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's Investment in net working capital will immediately increase by $40,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $70,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with respect to the new machine: Year 1: EBDIT = $120,000 Year 2: EBDIT = $150,000 Year 3: EBDIT = $150,000 The firm is subject to a 21 percent tax rate and the firm's discount rate is 10 percent. Requirement 1: Calculate the missing data in the table below for each year over the life of this project. (Do not round intermediate calculations. Round your answers to the nearest whole dollar (e.9., 32).) EBIT Year 1 Taxes EBDIT Depreciation $120,000 $150,000 $ $150,000 2 $ $ 3 Requirement 2: What is the book value of the machine at the end of Year 3? (Do not round intermediate calculations. Round your answer to the nearest whole dollar (e.g., 32).) Book Value (End of Year 3) Requirement 3: Calculate the taxes related to the sale of the asset at the end of the project and the after- tax salvage value of the machine. (Do not round intermediate calculations. Round your answer to the nearest whole dollar (e.g., 32).) Taxes After-Tax Salvage Value Requirement 4: What is the net cash flow of the project for each of the following years? (Do not round intermediate calculations. Net cash outflows should be indicated by a minus sign. Round your answers to the nearest whole dollar (e.g., 32).) Cash Flow $ Year 0 1 2 3 Requirement 5: What is the NPV of the project? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Belverd E Needles, Marian Powers

10th Edition

0547193289, 9780547193281

More Books

Students also viewed these Finance questions