Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $1,970.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,550.00. The machine would require an increase in net working capital (inventory) of $840.00. The new machine would not change revenues, but it is expected to save the firm $41,545.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 32.00%.If the project's cost of capital is 17.10%, what is the NPV of the project? Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72. A. $41,705.42 B. $52,791.67 C. $11,000.00 D. $12,970.00 E. $30,095.45 a. What is the initial cash outlay? b. What is the free cash flow for year 1? c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?
Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $1,970.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,550.00. The machine would require an increase in net working capital (inventory) of $840.00. The new machine would not change revenues, but it is expected to save the firm $41,545.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 32.00%.If the project's cost of capital is 17.10%, what is the NPV of the project? Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72. A. $41,705.42 B. $52,791.67 C. $11,000.00 D. $12,970.00 E. $30,095.45 a. What is the initial cash outlay? b. What is the free cash flow for year 1? c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 6E: Cash payback method Lily Products Company is considering an investment in one of two new product...
Related questions
Question
Cash flows estimation and capital budgeting:
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $1,970.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRSdepreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,550.00. The machine would require an increase in net working capital (inventory) of $840.00. The new machine would not change revenues, but it is expected to save the firm $41,545.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 32.00%.
If the project's cost of capital is 17.10%, what is the NPV of the project?
Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $1,970.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS
If the project's cost of capital is 17.10%, what is the NPV of the project?
Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
A. $41,705.42
B. $52,791.67
C. $11,000.00
D. $12,970.00
E. $30,095.45
a. What is the initial cash outlay?
b. What is thefree cash flow for year 1?
c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?
b. What is the
c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?
Expert Solution
Trending now
This is a popular solution!
Step by step
Solved in 10 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College