A company plans to add an additional production line at an initial cost of $ 1,250,000 that will give gross savings of $ 1,000,000 per year for 6 years. The annual costs for operating this line would be $250,000 for the same period. For tax purposes the company uses sum-of-the-year-digits depreciation, a salvage value of $125,000 and a life of 6 years for evaluating the project... The debt ratio is 60% and the cost of debt is 12% and the debt obligation to be paid in 6 constant total yearly payment of interest and principal. The company’s tax rate is 40% and the minimum acceptable rate of return is 15% for total cash flows. On the basis of equity cash flows pls determine if the additional production line is viable? (Ignore investment tax credit and working capital)
A company plans to add an additional production line at an initial cost of $ 1,250,000 that will give gross savings of $ 1,000,000 per year for 6 years. The annual costs for operating this line would be $250,000 for the same period. For tax purposes the company uses sum-of-the-year-digits
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