Question
In: Finance
You are evaluating a proposal to buy a new milling machine. The base price is $108,000...
You are evaluating a proposal to buy a new milling machine. The base price is $108,000 and shipping and installation costs would add another $12,500. The machine would be sold after 3 years for $65,000. The machine would require a $5,500 increase in net working capital (inventory). There would be revenues of $44,000 per year and cost of $10,000 per year. The company's tax rate is 35%, and the cost of capital (WACC) is 12%. Also the firm spent $15,000 last year investigating the feasability of using the machine. The opportunity cost of purchasing the machine is $5,000.
A) How should the $15,000 spent last year be handled?
B) What are the cash flows for each year - Initial cash flow. Operating cash flow and terminal cash flow?
C) Should the machine be purchased?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You are evaluating a proposal to buy a new milling machine. The base price is $108,000...
You are evaluating a proposal to buy a new milling machine. The
base price is $108,000 and shipping and installation costs would
add another $12,500. The machine would be sold after 3 years for
$65,000. The machine would require a $5,500 increase in net working
capital (inventory). There would be revenues of $44,000 per year
and cost of $10,000 per year. The company's tax rate is 35%, and
the cost of capital (WACC) is 12%. Also the firm spent $15,000...
You must evaluate a proposal to buy a new milling machine. The base price is $108,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $108,000, and shipping and installation costs would
add another $14,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $54,000. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $108,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $108,000, and shipping and installation costs would
add another $7,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $54,000. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,500 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $187,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $187,000, and shipping and installation costs would
add another $19,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $93,500. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $113,000,...
You
must evaluate a proposal to buy a new milling machine. The base
price is $113,000, and shipping and installation costs would add
another $18,000. The machine falls into the MACRS 3-year class, and
it would be sold after 3 years for $56,500. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $7,500 increase in net operating working capital (
increased inventory less increased accounts payable). There would
be no effect on revenues, but...
You must evaluate a proposal to buy a new milling machine. The base price is $106,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $106,000, and shipping and installation costs would
add another $8,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $63,600. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $8,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $183,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $183,000, and shipping and installation costs would
add another $9,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $128,100. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $8,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $137,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $137,000, and shipping and installation costs would
add another $9,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $95,900. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $9,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $114,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $114,000, and shipping and installation costs would
add another $11,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $39,900. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $7,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
You must evaluate a proposal to buy a new milling machine. The base price is $141,000,...
You must evaluate a proposal to buy a new milling machine. The
base price is $141,000, and shipping and installation costs would
add another $14,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $63,450. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,500 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...
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