Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You must evaluate a proposal to buy a new milling machine. The base price is $135,000 and shipping and installation costs would add another $8,000.

You must evaluate a proposal to buy a new milling machine. The base price is $135,000 and shipping and installation costs would add another $8,000. The machine falls into the MACRS 3-year class and it would be sold after 3 years for $94,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $52,000 per year. The marginal ta rate is 35% and the WACC is 8%.

a) What is the depreciation expense for Year 2?

b) What is the cash flow in Year 2?

c) What is the terminal cash flow at time t=3, given that the book value in year 4 is $10,010

d) What is the projects 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

Bond Markets Analysis and Strategies

Authors: Frank J.Fabozzi

9th edition

133796779, 978-0133796773

More Books

Students also viewed these Finance questions