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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