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Gamma Inc. is looking at a new product line with an installed cost of $520,000. This...
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This cost will be depreciated straight-line to $20,000 over the project’s five-year life. At the end of the project life, the installed machine can be scrapped and sold for $28,797. The machine will add $185,000 per year as sales and incur an additional $55,000, but will decrease $6,794 from the existing product line's sales. The system requires an initial investment in net working capital of $38,405. The NWC level will be maintained throughout the project years and recoverable at the end of the project. Assume the cost of capital is 6.5%, and Gamma Inc. belongs to the 35% tax bracket. Compute the NPV of the project and determine whether you will invest in this project. Round your answer to two decimal places.
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jeff jeffy answered 1 year agoRelated Solutions
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This...
Gamma Inc. is looking at a new product line with an installed
cost of $520,000. This cost will be depreciated straight-line to
$20,000 over the project’s five-year life. At the end of the
project life, the installed machine can be scrapped and sold for
$27,265. The machine will add $185,000 per year as sales and incur
an additional $55,000, but will decrease $7,368 from the existing
product line's sales. The system requires an initial investment in
net working capital of...
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This...
Gamma Inc. is looking at a new product line with an installed
cost of $520,000. This cost will be depreciated straight-line to
$20,000 over the project’s five-year life. At the end of the
project life, the installed machine can be scrapped and sold for
$27,644. The machine will add $185,000 per year as sales and incur
an additional $55,000, but will save $22,983 from the existing
product line. The system requires an initial investment in net
working capital of $42,315....
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This...
Gamma Inc. is looking at a new product line with an installed
cost of $520,000. This cost will be depreciated straight-line to
$20,000 over the project’s five-year life. At the end of the
project life, the installed machine can be scrapped and sold for
$27,644. The machine will add $185,000 per year as sales and incur
an additional $55,000, but will save $22,983 from the existing
product line. The system requires an initial investment in net
working capital of $42,315....
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This...
Gamma Inc. is looking at a new product line with an installed
cost of $520,000. This cost will be depreciated straight-line to
$20,000 over the project’s five-year life. At the
end of the project life, the installed machine can be scrapped and
sold for $27,701. The machine will add $185,000 per year as sales
and incur an additional $55,000, but will decrease $9,578 from the
existing product line's sales. The system requires an initial
investment in net working capital of...
Gamma Inc. is looking at a new product line with an installed cost of $520,000. This...
Gamma Inc. is looking at a new product line with an installed
cost of $520,000. This cost will be depreciated straight-line to
$20,000 over the project’s five-year life. At the end of the
project life, the installed machine can be scrapped and sold for
$26,694. The machine will add $185,000 per year as sales and incur
an additional $55,000, but will save $18,524 from the existing
product line. The system requires an initial investment in net
working capital of $32,858....
Cori's Meats is looking at a new sausage system with an installed cost of $520,000. This...
Cori's Meats is looking at a new sausage system with an
installed cost of $520,000. This cost will be depreciated
straight-line to zero over the project’s five-year life, at the end
of which the sausage system can be scrapped for $78,000. The
sausage system will save the firm $200,000 per year in pretax
operating costs, and the system requires an initial investment in
net working capital of $37,000. If the tax rate is 23 percent and
the discount rate is...
Sage is looking at a new system with an installed cost of $400,800. This cost will...
Sage is looking at a new system with an installed cost of
$400,800. This cost will be depreciated straight-line to zero over
the project's 4-year life, at the end of which the system can be
scrapped for $60,200. The system will save the firm $180,000 per
year in pretax operating costs, and the system requires an initial
investment in net working capital of $38,500. All of the net
working capital will be recovered at the end of the project. The...
The ABC Company is looking at a new piece of equipment with an installed cost of...
The ABC Company is looking at a new piece of equipment
with an installed cost of $187,400. This cost will be depreciated
straight-line to zero over the four-year life. At the end of the
four years the book value will be zero however it can be scrapped
for $25,000. The equipment will save the firm $99,000 per year in
pre-tax operating costs and the equipment requires an initial
investment in net working capital of $9,000 and will be recovered
at...
ABC is looking at purchasing a new machine. The new machine installed cost is $60,000 and...
ABC is looking at purchasing a new machine. The new machine
installed cost is $60,000 and requires minimal increase in NWC (net
working capital). It will be sold at the end of year 3 for an
anticipated $5,000. Use MACRS 3 yr. (Remember to add the terminal
cash flow in when calculating year 3 OCF) Anticipated cash savings
prior to depreciation: Year 1$20,000, Year 2 $30,000, Year 3
$20,000 Calculate the operating cash flows for each year. Tax Rate
is...
Cori's Meats is looking at a new sausage system with an installed cost of $450,000. This...
Cori's Meats is looking at a new sausage system with an
installed cost of $450,000. This cost will be depreciated
straight-line to zero over the project’s five-year life, at the end
of which the sausage system can be scrapped for $64,000. The
sausage system will save the firm $240,000 per year in pretax
operating costs, and the system requires an initial investment in
net working capital of $23,000. If the tax rate is 21 percent and
the discount rate is...
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