A company is considering purchasing some new machinery. Collectively, the acquisition cost would be $3.72 million...

A company is considering purchasing some new machinery. Collectively, the acquisition cost would be $3.72 million plus a transportation charge of $94,0000 to get the machinery to the plant. To better engineer the production flow, $450,000 was spent to pay a production consultant. Special electrical service would be required, that and related (required) plant upgrades will be $124,000. Training of the production workers costing $34,000 is also necessary. An increase in inventory of $75,000 is needed, to supply these raw materials our vendor is requiring that we reduce our account payables by $22,000. The now superior widgets that we will be manufacturing will be able to command a premium of $1,470,000 per year but manufacturing costs will increase by $270,000. The machinery has an economic life of 4 years and will be depreciated to zero using the straight line depreciation method. The machinery is expected to be sold at the end for $180,000. The company is taxed at 32% and can raise capital at a cost of 8%.

(a) What is the project’s initial cash outflow?

(b) What is the project’s operating cash flow per year?

(c) What is the project’s terminating cash flow?

Expert Solution

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