Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

X Company is considering a new processor that costs $150,000. Shipping and setup costs for the new processor are estimated to be $15,000. Xs working

X Company is considering a new processor that costs $150,000. Shipping and setup costs for the new processor are estimated to be $15,000. Xs working capital requirement is expected to increase by $17,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processors useful life is expected to be 5 years and its salvage value at that point is estimated to be $60,000. The new processor is being depreciated using a 5-year ACRS life. Assume a tax rate of 35% and a cost of capital of 12%.

Estimated incremental revenues and incremental cash operating expenses for the new processor before tax for each year are shown in the table below.

Year Incremental Revenue Incremental Cash Operating Expenses ACRS Depr. %
1 $87,000 $23,000 15
2 $82,000 $25,000 22
3 $93,000 $30,000 21
4 $87,000 $23,000 21
5 $88,000 $29,000 21

Q1.) What is the book value of the new processor at the end of Year 3?

Q2.) What is the total after-tax cash flows in Year 5? Total means incremental cash flows plus terminal cash flows.

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_2

Step: 3

blur-text-image_3

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

Valuing Agile The Financial Management Of Agile Projects

Authors: Alan Moran

1st Edition

0117082880, 9780117082885

More Books

Students also viewed these Finance questions

Question

What is a key public for this product/service/concept?

Answered: 1 week ago