Annual incremental operating cash flows for the new machine

Assignment Help Financial Management

Reference no: EM132056554

CellU, a subsidiary of CompU, is looking to replace one of the machines they use to manufacture cell phones with new, more efficient model. the current machine cost $7,500, is three years old, and is depreciated using the MACRS 3-year recovery period. The current machine could be sold now for $1,000, but at the end of 3 years, it would be worthless. The cost of the new machine is $11,500, installation costs are $500, and would require an increase in net working capital of $1,000. The expected life of the new machine is 3 years, is depreciated using the MACRS 3-year recovery period, and will reduce annual labor expenses from $10,000 to $4,000. At the end of the project, the firm will be able to sell the new machine for $3,000 and recover their investments in net working capital. The firm has a marginal tax rate of 40 percent.

a) Calculate the initial investment of the new machine. Show your work.

b) Calculate the annual incremental operating cash flows for the new machine. Show your work.

c) Calculate the terminal value of the new machine. Show your work.

Reference no: EM132056554

Questions Cloud

Risky investments may produce large losses : Which of the following is a false statement? Risky investments may produce large losses.

What is the price of the bond : A perpetual bond pays coupons of 6% every yr on a face value of $1,000. The rate of return on the bond is 8.9% every yr.

What must be the dollar coupon amount every : The bonds make semi-annual payments. What must be the dollar coupon amount every six-months for an ALINKO bond?

What is expected rate of return on stock : What is the expected rate of return on a stock with a beta of 1.21?

Annual incremental operating cash flows for the new machine : Calculate the initial investment of the new machine. Calculate the annual incremental operating cash flows for the new machine.

Consider a utility function-utility : Consider a utility function: Utility=10v(income). Your income is $121, but there is an illness going around the area that costs $96 to cure.

Effect on banana prices within that nation : A nation ends a tariff on bananas, which is an imported product.

Describe the type of budget you plan to implement : Describe the type of budget you plan to implement in your company, and outline the budgeting review steps necessary to ensure that your company

The era depicted in the gothic cathedral : In what ways are the standards of beauty of the era depicted in the Gothic cathedral?

User Account

All Pages