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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 it will have no salvage value. ​ Also, assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a 30 percent marginal tax​ rate, and a required rate of return of 99 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?

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