(Calculating project cash flows and? NPV) Raymobile Motors is considering the purchase of a new production machine...

60.1K

Verified Solution

Question

Finance

(Calculating project cash flows and? NPV)Raymobile Motors is considering the purchase of a new productionmachine for $ 550,000. The purchase of this machine will result inan increase in earnings before interest and taxes of $ 100,000 peryear. To operate this machine? properly, workers would have to gothrough a brief training session that would cost $ $26,000 aftertax. In? addition, it would cost ?$ 6,000 after tax to install thismachine correctly. ? Also, because this machine is extremely?efficient, its purchase would necessitate an increase in inventoryof ?$ 24,000. This machine has an expected life of 10 ?years, afterwhich it will have no salvage value. Assume simplified?straight-line depreciation, that this machine is being depreciateddown to? zero, a 30 percent marginal tax? rate, and a required rateof return of 12 percent.
a.??What is the initial outlay associated withthis? project?
b.??What are the annual? after-tax cash flowsassociated with this project for years 1 through 9??
c.??What is the terminal cash flow in year 10?(that is, the annual? after-tax cash flow in year 10 plus anyadditional cash flows associated with termination of the?project)?
d.??Should this machine be? purchased?

Answer & Explanation Solved by verified expert

3.8 Ratings (668 Votes)

Please refer to below spreadsheet for See Answer

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

Transcribed Image Text

(Calculating project cash flows and? NPV)Raymobile Motors is considering the purchase of a new productionmachine for $ 550,000. The purchase of this machine will result inan increase in earnings before interest and taxes of $ 100,000 peryear. To operate this machine? properly, workers would have to gothrough a brief training session that would cost $ $26,000 aftertax. In? addition, it would cost ?$ 6,000 after tax to install thismachine correctly. ? Also, because this machine is extremely?efficient, its purchase would necessitate an increase in inventoryof ?$ 24,000. This machine has an expected life of 10 ?years, afterwhich it will have no salvage value. Assume simplified?straight-line depreciation, that this machine is being depreciateddown to? zero, a 30 percent marginal tax? rate, and a required rateof return of 12 percent.a.??What is the initial outlay associated withthis? project?b.??What are the annual? after-tax cash flowsassociated with this project for years 1 through 9??c.??What is the terminal cash flow in year 10?(that is, the annual? after-tax cash flow in year 10 plus anyadditional cash flows associated with termination of the?project)?d.??Should this machine be? purchased?