Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Weir's Trucking, Inc, is considering the purchase of a new production machine for $100, 000. The purchase of this new machine will result in an
Weir's Trucking, Inc, is considering the purchase of a new production machine for $100, 000. The purchase of this new machine will result in an increase in earnings before interest and taxes of $25,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $5,000 after tax. In addition, it would cost $5,000 after tax to install this machine correctly. Also, because this machine is extremely efficient, its purchase would necessitate an increase in inventory of $25,000. This machine has an expected life of after which it will have no salvage value. Finally, to purchase the new machine if appears that the firm would have to borrow $80, 000 at 10 percent interest from Us local bank, resulting in additional interest payments of S8,(XX) per year. Assume! simplified straight-line depreciation, that this machine is being depreciated down to zero, a 34% marginal tax rate, and a required rate of return of 12%. What is the initial outlay associated with this project? What are the annual after-tax cash flows associated with this project for years 1 through 9? What is the terminal cash flow in year 10 (what is the annual after-tax cash flow in year 10 plus any additional cash flows associated with termination of the project)? should this machine be purchased
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started