Question
In: Finance
Read Book Company is the manufacturer of exercise machines and is considering producing a new line...
Read Book Company is the manufacturer of exercise machines and is considering producing a new line of equipment in an effort to increase its market share. The new production line will cost $850,000 for manufacturing the parts and an additional $280,000 is needed for installation. The equipment falls into the MACRS 3‐yr class, and would be sold after four years for $350,000. The equipment line will generate additional annual revenues of $600,000, and will have additional annual operating expenses of $300,000. An inventory investment of $75,000 is required during the life of the project. Read Book Company is in the 25 percent tax bracket, and its existing cost of capital is 8 percent.
a. Calculate the initial outlay of the project
b. Calculate the annual after‐tax operating cash flow for Years 1 ‐4.
c. Determine the terminal year non‐operating cash flow in year 4:
d. What is the equipment NPV?
e. What is the estimated Internal Rate of Return (IRR) of the equipment?
f. Should the equipment be accepted based on the IRR criterion?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Read Book Company is the manufacturer of exercise machines and is considering producing a new line...
Read Book Company is the manufacturer
of exercise machines and is considering producing a new line of
equipment in an effort to increase its market
share. The new production line will cost $850,000
for manufacturing the parts and an additional $280,000 is needed
for installation. The equipment falls into the MACRS 3‐yr class,
and would be sold after four years for $350,000. The equipment line
will generate additional annual revenues of $600,000, and will
have
additional annual operating expenses
of...
Read Book Company is the manufacturer of exercise machines and is considering producing a new line...
Read Book Company is the manufacturer of exercise machines and
is considering producing a new line of equipment in an effort to
increase its market share. The new production line will cost
$850,000 for manufacturing the parts and an additional $280,000 is
needed for installation.
The equipment falls into the MACRS 3‐yr class, and would be sold
after four years for $350,000. The equipment line will generate
additional annual revenues of $600,000, and will have Additional
annual operating expenses of...
Read Book Company is the manufacturer of of exercise machines and is considering producing a new...
Read Book Company is the manufacturer of of exercise machines
and is considering producing a new line of equipment in an effort
to increase its market share. The new production line will cost
$850,000 for manufacturing the parts and an additional $280,000is
needed for installation. The equipment falls into the MACRS 3-yr
class, and would be sold after four years for $350,000. The
equipment line will generate additional annual revenues of
$600,000, and will have additional annual operating expenses of...
Read Book Company is the manufacturer of of exercise machines and is considering producing a new...
Read Book Company is the manufacturer of of exercise machines
and is considering producing a new line of equipment in an effort
to increase its market share. The new production line will cost
$850,000 for manufacturing the parts and an additional $280,000is
needed for installation. The equipment falls into the MACRS 3-yr
class, and would be sold after four years for $350,000. The
equipment line will generate additional annual revenues of
$600,000, and will have additional annual operating expenses of...
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