Question
In: Finance
(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for...
(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for $200,000.The purchase of this machine will result in an increase in earnings before interest and taxes of $50,000 per year. To operate the machine properly, workers would have to go through a brief training session that would cost $7,000 after taxes. It would cost $4,000 to install the machine properly. Also, because this machine is extremelyefficient, its purchase would necessitate an increase in inventory of $20,000.This machine has an expected life of 10 years, after which it will have no salvage value. Finally, to purchase the new machine, it appears that the firm would have to borrow $100,000 at 12 percent interest from its local bank, resulting in additional interest payments of $12,000 per year. Assume simplified straight-line depreciation and that the machine is being depreciated down to zero, a 31 percent marginal tax rate, and a required rate of return of 14 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 theproject)?
d. Should the machine be purchased?
Answer and show work in excel if possible
Solutions
jeff jeffy answered 1 year agoRelated Solutions
(New project analysis) Garcia's Truckin' Inc. is considering the purchase of a new production machine for...
(New project analysis) Garcia's
Truckin' Inc. is considering the purchase of a new production
machine for $200,000. The purchase of this machine will result in
an increase in earnings before interest and taxes of $50,000 per
year. To operate the machine properly, workers would have to go
through a brief training session that would cost $5,000 after
taxes. It would cost $5,000 to install the machine properly. Also,
because this machine is extremely efficient, its purchase would
necessitate an increase...
?(New project analysis?)? Garcia's Truckin' Inc. is considering the purchase of a new production machine for...
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