Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / New project analysis Raymobile Motors is considering the purchase of a new production mach...

New project analysis Raymobile Motors is considering the purchase of a new production machine for $500000 The purchase of this machine will result in an increase in earnings before interest and tax

New project analysis) Raymobile Motors is considering the purchase of a new production machine for $500,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after taxes. It would cost $5,000 to install the machine properly. Also, because the machine is extremely efficient, its purchase would necessitate an increase in inventory of $30,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight-line depreciation and that this machine is being depreciated down to zero, a 34 percent marginal tax rate, and a required rate of return of 15 percent.

a. What is the initial outlay associated with this project?

b. What are the annual after-tax cash flows associated with this project for years 1 through 9?

c. What is the terminal cash flow in year 10 (what is the annual after-tax cash flow in year 10 plus any additional cash flows associated with the termination of the project)?

d. Should the machine be purchased?

Apr 27 2020 View more View Less

Answer (Solved)

question Subscribe To Get Solution

Related Questions