Reference no: EM131188855
Annual savings from Project X include a reduction of ten clerical employees with annual salaries of $15,000 each, $8,000 from reduced production delays, $12,000 from lost sales due to inventory stock-outs, and $3,000 in reduced utility costs. Project X costs $250,000 and will be depreciated over a five-year period using straight-line depreciation. Incremental expenses of the system include two new operators with annual salaries of $40,000 each and operating expenses of $12,000 per year. The firms’ tax rate is 34 percent.
a. Find Project X’s initial cash outlay.
b. Find the project’s operating cash flows over the five-year period.
c. If the project’s required return is 12 percent, should it be implemented?
Source textbook: Melicher, R. W., & Norton, E. A. (2011). Introduction to finance: Markets, investments, and financial management (14th ed.). Hoboken, NJ: John Wiley.
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