Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. 12-9 new project analysis you must evaluate a prop

12-9 NEW PROJECT ANALYSIS You must evaluate a proposal to buy a new milling machine....

50.1K

Verified Solution

Question

Accounting

image
12-9 NEW PROJECT ANALYSIS You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33%, 45%, 15%, and 796 as discussed in Appendix 12A. The machine would require a $5,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $44,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine. re ld 50, nt a. How should the $5,000 spent last year be handled? ood re b. What is the initial investment outlay A-z for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? es, nt. c. What are the project's annual cash flows during Years 1, 2, and 3? d. Should the machine be purchased? Explain your answer sions a

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students