QUESTION 1 A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in revenue due to the purchase of this machine. The company will have to train an operator to run this machine and this will result in additional labor expenses of $25,000 annually. The new machine will be depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%. What is the initial cash flow (at time=0) for this project? O a. 200,000 O b.-50,000 O. O Od. -200,000
QUESTION 1 A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in revenue due to the purchase of this machine. The company will have to train an operator to run this machine and this will result in additional labor expenses of $25,000 annually. The new machine will be depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%. What is the initial cash flow (at time=0) for this project? O a. 200,000 O b.-50,000 O. O Od. -200,000
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 14PROB
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Transcribed Image Text:QUESTION 1
A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in
revenue due to the purchase of this machine. The company will have to train an operator to run this
machine and this will result in additional labor expenses of $25,000 annually. The new machine will be
depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is
estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%.
What is the initial cash flow (at time=0) for this project?
O a. 200,000
O b.-50,000
O.O
O d. -200,000
QUESTION 2
What is the Present Worth of this project, using MARR=15%?
O a. -$2,123
O b. $8,934
Oc. $24,292
O d.$158,400
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