You are considering the purchase of a new machine for a project. Details of this potential purchase are provided below. • The project life is 3 years • The machine costs $240,000 o • • You will pay cash for half of this at time 0, and will finance the remaining half at 10% APR compounded annually over 3 years. o The machine will be depreciated using a 7 year MACRS approach. Annual O&M costs of the machine are $25,000. Annual labor savings (revenues) are $100,000. Salvage Value at the end of year 3 will be $90,000. Working Capital requirement is initially $50,000. Any investment in Working Capital will be recovered at the end of the project. • Assume an income tax rate and gains tax rate of 21%. • Your MARR is 15%. NOTE: DO THIS PROBLEM AS A CONSTANT YEAR PROBLEM (I.E. YOU DON'T NEED TO ADJUST FOR THE EFFECTS OF INFLATION) Part (a) (a)). Fill in the Income and Cash Flow tables on the next page to find the annual after-tax cash flows. Cells outlined in BOLD are grading checkpoints. These cells are the "Net income" and "Depreciation" rows in the Cash Flow Statement and the "NET CASH FLOW" row "

You are considering the purchase of a new machine for a project. Details of this potential purchase are provided below. • The project life is 3 years • The machine costs $240,000 o • • You will pay cash for half of this at time 0, and will finance the remaining half at 10% APR compounded annually over 3 years. o The machine will be depreciated using a 7 year MACRS approach. Annual O&M costs of the machine are $25,000. Annual labor savings (revenues) are $100,000. Salvage Value at the end of year 3 will be $90,000. Working Capital requirement is initially $50,000. Any investment in Working Capital will be recovered at the end of the project. • Assume an income tax rate and gains tax rate of 21%. • Your MARR is 15%. NOTE: DO THIS PROBLEM AS A CONSTANT YEAR PROBLEM (I.E. YOU DON'T NEED TO ADJUST FOR THE EFFECTS OF INFLATION) Part (a) (a)). Fill in the Income and Cash Flow tables on the next page to find the annual after-tax cash flows. Cells outlined in BOLD are grading checkpoints. These cells are the "Net income" and "Depreciation" rows in the Cash Flow Statement and the "NET CASH FLOW" row "

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...

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