Question

(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 properly operate this​ machine, inventory must be increased by

​$3 comma 5003,500.

This machine has an expected life of

1010

​years, after which it will have no salvage value. ​ Also, assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a

3636

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

1010

​(that is, the annual​ after-tax cash flow in year

1010

plus any additional cash flows associated with termination of the​ project)?

d.  Should this machine be​ purchased?

a.  The initial cash outlay associated with this project is

​$nothing.

​ (Round to the nearest​ dollar.)

Answer 1

NPV IS ROUNDED TILL 2 DIGITS AS NOTHING WAS MENTIONED. THANK YOU.

NPV ROUNDED TO ZERO DECIMAL WILL BE = 104311.