Considering a new automatic copying machine

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Reference no: EM13537377

2. Evanston Quick-Print Shop is considering a new automatic copying machine that can be purchased for $14,800. Delivery will cost $300 and set-up will cost $500. The machine will be paid for and placed in service Dec 31,1993. It will be depreciated using a 5 year MACRS technique. The firm currently faces a 40% tax bracket.
a. What is the initial relevant cash flow to acquire the machine?
b. The copying machine described above, is expected to last for 5 years, during which it will produce approximately 1 mil copies. Copies will sell for an average of 6 cents each. Material, labor, and other variable costs will be approximately 3 cents a copy. Working capital needs will be negligible as copying with this machine will be almost all on a cash basis, and current liabilities will offset the supplies inventory need. Determine the relevant cash flow for 1994 through 1998.
c. The copying machine described above is sold at the end of the 5 year life for $500. What is the terminal cash flow?
d. Evanston Quick-Print has a required return of 14%. Is the copying machine an attractive investment?

Reference no: EM13537377

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