Majestic Aircraft Company (MAC) is considering purchasing new equipment with a purchase price of $200,000, shipping and handling of $4,000, and installation cost of $6,000. MAC is sending an employee for training to operate the equipment at a cost of $12,000. A working capital of $15,000 is needed to get the equipment up and running. The expected annual revenue from this machine is $50,000 and expected annual operating cost is $10,000. The equipment will be depreciated based on a Straight Line method over a seven-year life toward a zero salvage value. MAC is expecting to sell the equipment at $8,000 at the end of the seven years. Assuming tax rate of 40 percent calculate the following: • a. First cost (P) •b. Net annual cash flow (NACF) • . Terminal cash flow (TCF)

Majestic Aircraft Company (MAC) is considering purchasing new equipment with a purchase price of $200,000, shipping and handling of $4,000, and installation cost of $6,000. MAC is sending an employee for training to operate the equipment at a cost of $12,000. A working capital of $15,000 is needed to get the equipment up and running. The expected annual revenue from this machine is $50,000 and expected annual operating cost is $10,000. The equipment will be depreciated based on a Straight Line method over a seven-year life toward a zero salvage value. MAC is expecting to sell the equipment at $8,000 at the end of the seven years. Assuming tax rate of 40 percent calculate the following: • a. First cost (P) •b. Net annual cash flow (NACF) • . Terminal cash flow (TCF)

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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