The after-tax salvage and the return of working capital

Assignment Help Financial Management

Reference no: EM13828691

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%.

a. What is the Year 0 net cash flow?

b. What are the net operating cash flows in Years 1, 2, and 3?

c. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)?

d. Based on your IRR analysis, if the project’s cost of capital is 12%, should the machine be purchased?

Reference no: EM13828691

Questions Cloud

Giving null and research hypothesis : Giving Null and Research Hypothesis

Define reintregrative shaming and restorative justice : What is the relationship or connection between reintregrative shaming and restorative justice

Management and organization behavior issues : Prepare a five-page paper discussing a current news event found on www.cnn.com OR www.foxnews.com OR www.msnbc.com that involves management and organization behavior issues.

Adopt during the cold war : Which of the following policies did the United States adopt during the Cold War?

The after-tax salvage and the return of working capital : The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. What are the net operating cash flows in Years 1, 2, and 3? What is t..

Improve the employee heath and well being : Evaluate four (4) of the interventions that organizations can introduce to their employee to improve the employee heath and well being. You need to explain why and how that organization's characteristic can introduce to their employee to improve t..

Use of the irr method of evaluation : Use the internal rate of return (IRR) approach to help you select from among the two projects under consideration. Discuss the various pitfalls identified related to use of the IRR method of evaluation.

Theory about the use of nuclear weapons : Which of the following is a theory about the use of nuclear weapons?

Calculate p-value of f test for given dataset : Calculate p-value of F test for Given Dataset

User Account

All Pages