Determine incremental after-tax operating cash flows

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Reference no: EM131575548

Burton, a manufacturer of snowboards, is considering adding a more sophisticated machine. The following information is given.

The proposed machine will cost $120,000 and have installation costs of $15,000. It will be depreciated using a 5 year MACRS recovery schedule. It can be sold for $10,000 after five years of use (at the end of year 5).

The incremental earnings before taxes and depreciation (EBITDA) are projected to be:

Year 1: 43,000, Year 2: 45,000, Year 3: 46,000, Year 4: 49,000, Year 5: 53,000

Burton pays 34 percent taxes on ordinary income and capital gains.

They expect a large increase in sales so their Net Working Capital will increase by $20,000.

The maximum payback period allowed is 4 years.

They are currently using a WACC of 14% to evaluate investment projects.

a. Determine the incremental after-tax operating cash flows

b. calculate the MIRR

Please show work

Reference no: EM131575548

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