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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 $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?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of...
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per year. The machine has a purchase price of $350,000 and it
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(Calculating project cash flows and NPV) The Chung Chemical
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$ 34 comma 000$34,000
per year, it has a purchase price of
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