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In: Finance
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of...
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of $65,000 per year. The machine has a purchase price of $350,000 and it would cost an additional $9,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $18,000.This machine has an expected life of 10 years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero,32 percent marginal tax rate, and a required rate of return of 13 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 99?
c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plus any additional cash flow associated with termination of the project)?
d. Should this machine be purchased?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of...
The Guo Chemical Corporation is considering the purchase of a
chemical analysis machine. The purchase of this machine will result
in an increase in earnings before interest and taxes of $75,000 per
year. The machine has a purchase price of $300,000, and it would
cost an additional $5,000 after tax to install this machine
correctly. In addition, to operate this machine properly,
inventory must be increased by $12,000. This machine has an
expected life of 10 years, after which time...
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The machine will be needed for five years after which it will have
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expected life of five years with a salvage value of $5,000. The new
machine will require $2000 additional working capital. The new
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five years...
Colby Firestone Corporation is considering the purchase of a new machine to replace an old machine....
Colby Firestone Corporation is considering the purchase of a new
machine to replace an old machine. The new machine will cost
$135,000, has an installation cost of $5000, and will have an
expected life of five years with a salvage value of $5,000. The new
machine will require $2000 additional working capital. The new
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Management estimates that the new bottling machine will provide net
annual cash flows of $31,000. Management also believes that the new
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more reliable than other machines, and thus will reduce downtime.
Assume a discount rate of 10%. Click...
(Calculating project cash flows and NPV) The Chung Chemical Corporation is considering the purchase of a...
(Calculating project cash flows and NPV) The Chung Chemical
Corporation is considering the purchase of a chemical analysis
machine. Although the machine being considered will result in an
increase in earnings before interest and taxes of
$ 34 comma 000$34,000
per year, it has a purchase price of
$85 comma 00085,000,
and it would cost an additional
$8 comma 0008,000
after tax to correctly install this machine. In addition, to
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The management of Penfold Corporation is considering the
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labor and other costs by $70,000 per year. The company requires a
minimum pretax return of 12% on all investment projects.
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine
the appropriate discount factor(s) using the tables provided.
The net present value of the proposed project is...
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