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Initial outlay associated of chung chemical corporation

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Reference no: EM132420257

Problem: The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of ?$35000 per? year, it has a purchase price of ?$100000?, and it would cost an additional ?$5000 to properly install the machine. In? addition, to properly operate the? machine, inventory must be increased by ?$5000. This machine has an expected life of 10 ?years, after which it will have no salvage value.? Also, assume simplified? straight-line depreciation and that this machine is being depreciated down to? zero, a 34 percent marginal tax? rate, and a required rate of return of 15 percent.

Required:

Question 1: What is the initial outlay associated with this? project?

Question 2: What are the annual? after-tax cash flows associated with this project for years 1 through? 9?

Question 3: What is the terminal cash flow in year 10? (what is the annual? after-tax cash flow in year 10 plus any additional cash flows associated with the termination of the? project)?

Question 4: Should this machine be? purchased?

Reference no: EM132420257

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