Q1: ity Deema International Corp., a top textile manufacturer in Palestine, wants to start producing cotton products, and they are considering the purchase of a new woolen mill machine that costs $52, 000. The machine has a useful life of 5 years, however, due to the rapid changes in the market, it has been planned that this machine will be used only for two years. At the end of these two years, it will be sold for $22,000. The related financial data is given as below: The machine falls into MACRS five-year class. The associated depreciation rates are given as below: Year 3 4 6 Depreciation Rate 20% 32% 19.2% 11.52 % 11.52% 5.76% The new machine is expected to generate an additional annual revenue of $82,000. The operation and maintenance cost of the machine is expected to be $22,000 in the first year, and $27,000 in the second year. . There is a working capital requirement of $6,000 at the beginning of each year, which is to be spent on material expenses. The working capital will be fully recovered at the end of two years. The marginal tax rate of the company is 40% and the market interest is 18%.

Q1: ity Deema International Corp., a top textile manufacturer in Palestine, wants to start producing cotton products, and they are considering the purchase of a new woolen mill machine that costs $52, 000. The machine has a useful life of 5 years, however, due to the rapid changes in the market, it has been planned that this machine will be used only for two years. At the end of these two years, it will be sold for $22,000. The related financial data is given as below: The machine falls into MACRS five-year class. The associated depreciation rates are given as below: Year 3 4 6 Depreciation Rate 20% 32% 19.2% 11.52 % 11.52% 5.76% The new machine is expected to generate an additional annual revenue of $82,000. The operation and maintenance cost of the machine is expected to be $22,000 in the first year, and $27,000 in the second year. . There is a working capital requirement of $6,000 at the beginning of each year, which is to be spent on material expenses. The working capital will be fully recovered at the end of two years. The marginal tax rate of the company is 40% and the market interest is 18%.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 5PROB

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