Reference no: EM131027048
A company is purchasing a new machine which will cost $130,000 with additional shipping costs of $5,000 and set up and installation costs of $12,000.
An additional $8,000 in Net Working Capital will be required.
Project life is five (5) years.
The project will increase revenues by $90,000 each year and operating costs will increase by $32,000 annually.
The machine has a class life of seven (7) years and will be depreciated using the straight line method.
The company will sell the machinery for $50,000 at the end of five years.
The company’s cost of capital is 12% and the marginal tax rate is 34%.
Calculate the Initial Outlay (startup costs) in year 0.
$135,000
$155,000
$147, 000
$158,000
Calculate the depreciable asset (On what will you base your depreciation?)
$130,000
$147,000
$155,000
$135,000
Calculate the Annual Cash Flows for year 1
Compute the non-operational cash flows (sometimes called terminal cash flows).
$48,277
$83,467
$47,146
$55,280
$46,345
$24,420
$48,276
$45,420
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