### Calculate the initial outlay and depreciable asset

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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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