XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC...

60.1K

Verified Solution

Question

Finance

XYZ is now evaluating the purchase of a new machine for $210,000installed with no NWC change. They plan to sell the machine at theend of 3 years for $30,000. MACRS 3 year depreciation. With themore efficient machine, labor savings per year are expected to be$70,000, $94,000 and $76,000 respectively. 40% tax. The cost ofcapital for this project is 8.%
The option of working cooperatively with another company hasjust been presented instead of purchasing the new machine. Thedetails of this option are: initial investment of $120,000, netoperating cash flows (years 1-3) of 47,000, 49,000 and 52,000respectively (already takes into account depreciation effect andterminal cash flow so there is no need to calculate depreciationeffect or terminal value just use these as-is for your analysis),cost of capital for this project is 8.2%.
1. Besides analyzing the numbers, list two areas of concern XYZmight look at when deciding whether to choose working cooperativelywith another company. State in 25 words or less.

Answer & Explanation Solved by verified expert

4.2 Ratings (545 Votes)

Year cost of new machine MACRS rate annual depreciation 1 210000 3333 69993 2 210000 4445 93345 3 210000 1481 31101 accumulated depreciation 194439 Book value at the end of year 3 210000194439 15561 Gain on sale of machine 3000015561 14439 tax on gain on sale 1443940 57756 after tax sale proceeds 3000057756 242244 Year 0 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