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Capital project-based on the information

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Reference no: EM13923899

 XYZ is contemplating a capital project-based on the following information,

cost of new equipment including installation and freight (assume 5 yr straight line method) $150,000

market research, performed last year $50,000

prestart hiring and advertising exp $45,000

projects units to be sold (yrs 1-3) 20,000

projects units to be sold (yrs 4-5) 25,000

price per unit (yrs 1-3) $22

price per unit (yrs 4-5) $24

cost ratio (yrs 1-5) 65.0%

incremental cash expenses (yrs 1-5) $125,000

corporate tax rate 45%

corporate cost of capital (answer #1 c[DV] or d[MV]) 8.7%

to do the above project, XYZ would be selling their old equipment originally purchased for $180,000, 5 years ago, depreciated over 10 years with no salvage value. XYZ has a commitment from a buyer for the equipment for a price of $55,000. ( a tax loss is a tax credit)

Please find out the cash outlay and providing its procedures.

Reference no: EM13923899

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