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you are considering expanding your business. The machine will cost 9,000 in year 0, and it will cost $1,000 in year 0 to install the
you are considering expanding your business. The machine will cost 9,000 in year 0, and it will cost $1,000 in year 0 to install the machine. The machine can be used for four years with straight line depreciation, and you sell it at the end of year five for $1,000. When you purchase the machine in year 0 you will also need to increase the inventory by $3,000, increase accounts receivable by $1,000 and increase accounts payable by $1,000. These items will keep at the same level through the operation years. The corporate tax rate is 25%. The machine will increase sales by 1000 units. Each unit costs $10 to manufacture, and sells for $20. What is the initial cash flow at Year 0? What is the annual after tax operating cash flow for each year? What is the terminal cashflow at year 5? What is the NPV of this project if cost of capital is 15%
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