Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. your company is upgrading to more efficient produc

Your company is upgrading to more efficient production equipment for your firms only product. This...

70.2K

Verified Solution

Question

Finance

Your company is upgrading to more efficient production equipment for your firms only product. This upgrade was based on the recommendations of a consulting firm the company hired at a cost of $34,400. The new equipment will cost $2,000,000 and shipping costs of $10,000 will be incurred. Because the industry is changing rapidly, the equipment will be obsolete in 4 years so there will be no salvage value. The new equipment will allow you to make more of your product in the same amount of time. As a result your total sales will increase by $400,000 annually and expenses will decrease by $260,000. Because your production will be increasing, inventory levels will need to be increased by $40,000 and accounts receivable will also increase by $30,000. Rather than paying your suppliers within 10 days, you will move to 30 day payments which will increase accounts payable by $20,000. The equipment will be depreciated for tax purposes at CCA rate of 20%. The companys tax rate is 40% and the company requires a rate of return of 7% on all capital expenditure projects.

A) Determine the present value of the after-tax net operating cash flows.

B) Determine the present value of the terminal cash flow (PVTCF)

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