ATT is considering a project. The project requires to purchase an equipment with a cost of...

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ATT is considering a project. The project requires to purchasean equipment with a cost of $1.55 million. The equipment will bedepreciated straight-line to a zero book value over the 9-year lifeof the project. At the end of the project it will be sold for amarket value of $240,000. The project will not change sales butwill reduce operating costs by $399,000 per year. The project alsorequires an initial investment of $52,000 in net working capital,which will be recouped when the project ends. The tax rate is 34percent.
(1) What is the cash flow of the project in year 0 (or at thebeginning of the project)?
(2) What is the cash flow of the project in each year from year1to year 8?
(3) What is the cash flow of the project in year 9 (or theending year)? [hint: there are 3 cash flow items, for exampleafter-tax salvage value]
(4) What is the project's NPV if the required return is 11.5percent? [hint: the answer for NPV value is one of the followingchoices:] A. $215,433 B. $276,945 C. $268,011 D. $225,225 E.$257,703

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3.8 Ratings (622 Votes)

Initial Investment Cost of machine 1550000 Additional Working Capital Required 52000 Total Initial Cash Flow 1602000 Intermediate Cash Flow Reduction in Operating Cost 399000 Depreciation See Answer

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ATT is considering a project. The project requires to purchasean equipment with a cost of $1.55 million. The equipment will bedepreciated straight-line to a zero book value over the 9-year lifeof the project. At the end of the project it will be sold for amarket value of $240,000. The project will not change sales butwill reduce operating costs by $399,000 per year. The project alsorequires an initial investment of $52,000 in net working capital,which will be recouped when the project ends. The tax rate is 34percent.(1) What is the cash flow of the project in year 0 (or at thebeginning of the project)?(2) What is the cash flow of the project in each year from year1to year 8?(3) What is the cash flow of the project in year 9 (or theending year)? [hint: there are 3 cash flow items, for exampleafter-tax salvage value](4) What is the project's NPV if the required return is 11.5percent? [hint: the answer for NPV value is one of the followingchoices:] A. $215,433 B. $276,945 C. $268,011 D. $225,225 E.$257,703