# ​(Calculating project cash flows and​ NPV)  The Guo Chemical Corporation is considering the purchase of a chemical analysis machine.  The purchase of this machine will result in an increase in earnings before interest and taxes of ​\$70,000per year. The machine has a purchase price of \$250,000​,and it would cost an additional​\$10,000 after tax to install this machine correctly.  In​ addition, to operate this machine​ properly, inventory must be increased by ​\$15,000.This machine has an expected life of 10​years, after which time it will have no salvage value. ​ Also, assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a34 percent marginal tax​ rate, and a required rate of return of15 percent. a.  What is the initial outlay associated with this​ project? b.  What are the annual​ after-tax cash flows associated with this project for years 1 through 9​? c.  What is the terminal cash flow in year 10​ (that is, the annual​ after-tax cash flow in year 10 plus any additional cash flow associated with termination of the​ project)?

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​(Calculating project cash flows and​ NPV)
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine.  The purchase of this machine will result in an increase in earnings before interest and taxes of ​\$70,000per year. The machine has a purchase price of \$250,000​,and it would cost an additional
​\$10,000 after tax to install this machine correctly.  In​ addition, to operate this machine​ properly, inventory must be increased by ​\$15,000.
This machine has an expected life of 10​years, after which time it will have no salvage value. ​ Also, assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a
34 percent marginal tax​ rate, and a required rate of return of
15 percent.

a.  What is the initial outlay associated with this​ project?

b.  What are the annual​ after-tax cash flows associated with this project for years 1 through 9​?

c.  What is the terminal cash flow in year 10​ (that is, the annual​ after-tax cash flow in year 10 plus any additional cash flow associated with termination of the​ project)?

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Step 1

Calculate the initial cost, annual after-tax cash flows, and terminal cash flow in year 10 as follows:

Step 2

Workings...

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