QUESTION:. Basket Wonders (BW) is considering the purchase of a new basket weaving machine. The machine...

QUESTION:. Basket Wonders (BW) is considering the purchase of a new basket weaving machine. The machine will cost GH¢ 50,000 plus GH¢ 20,000 for shipping and installation. Net working capital will rise by GH¢ 5,000. Lisa Miller forecasts that revenues will increase by GH¢ 110,000 for each of the next 4 years and will then be sold (scrapped) for GH¢ 10,000 at the end of the fourth year, when the project ends. Operating costs will rise by GH¢ 70,000 for each of the next four years. BW is in the 40% tax bracket.

a) Determine the initial cash outflow

b) Compute the interim cash flows for each year

c) Compute the terminal cash flow

d) Compute the payback period for this investment

e) Compute the NPV and profitability index if the discount rate is 12.9%.

Expert Solution

jeff jeffy answered 1 year ago

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