20-10A) (Ner project analysus) Raymobilę Morors is considering the purchase of a new produc con machine for $500,000. The purchase of this machine will result in an increase in earning before interest and taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after tat. In addition, it would cost $5,000 after tax to install this machine properly. Also, because this machine is extremely effe cient, its purchase would necessitate an increase in inventory of $30,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight line depreciation and that this machine is being depreciated down to zero, a 34 percent margina rate, and a required rate of return of 15 percent. a. What is the initial outlay associated with this project? ^ 6. What are the annual after-tax cash flows associated with this project for years 1 through What is the terminal cash flow in year 10 (what is the annual afta-tar cash flow in IC plus any additional cash flows associated with termination of the project)? d. Should this machine be purchased?
20-10A) (Ner project analysus) Raymobilę Morors is considering the purchase of a new produc con machine for $500,000. The purchase of this machine will result in an increase in earning before interest and taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after tat. In addition, it would cost $5,000 after tax to install this machine properly. Also, because this machine is extremely effe cient, its purchase would necessitate an increase in inventory of $30,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight line depreciation and that this machine is being depreciated down to zero, a 34 percent margina rate, and a required rate of return of 15 percent. a. What is the initial outlay associated with this project? ^ 6. What are the annual after-tax cash flows associated with this project for years 1 through What is the terminal cash flow in year 10 (what is the annual afta-tar cash flow in IC plus any additional cash flows associated with termination of the project)? d. Should this machine be purchased?
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 13PROB
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Transcribed Image Text:20-10A (Ne project analyss) Raymobile Morors is considering the purchase of a new produc
con machine for $500,000. The purchase of this machine will result in an increase in earning
before interest and taxes of $150,000 per year. To operate this machine properly, workers would
have to go through a brief training session that would cost $25,000 after tat. In addition, it would
cost $5,000 after tax to install this machine properly. Also, because this machine is extremely eff
cient, its purchase would necessitate an increase in inventory of $30,000. This machine has in
expected life of 10 years, after which it will have no salvage value. Assume simplified straight line
depreciation and that this machine is being depreciated down to zero, a 34 percent marginanc
rate, and a required rate of return of 15 percent.
a. What is the initial outlay associated with this project?
6. What are the annual after-tax cash flows associated with this project for years 1 through
2. What is the terminal cash flow in year 10 (what is the annual afta-tar cast: flow in
IC pluscny additional cash Acws associated with termination of the project)
d. Should this machine be purchased?
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VIEWStep 2: a) Compute the Initial cash outlay.
VIEWStep 3: b) Compute the Annual after-tax cash flows for years 1-9
VIEWStep 4: c) Compute the terminal cash flow in year 10
VIEWStep 5: d) Decide whether the machine should be purchased or not.
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