A company is evaluating the pr

A company is evaluating the proposed acquisition of a newmachine. The machine’s base price is $108,000, and it would costanother $12,500 to modify it for special use. Depreciation ratesare 0.33, 0.45, and 0.15 for years 1, 2, and 3, respectively, andit would be sold after 3 years for $65,000. The machine wouldrequire an increase in net working capital (inventory) of $5,500.The machine would have no effect on revenues, but it is expected tosave the firm $44,000 per year in before-tax operating costs,mainly labor. The company’s marginal tax rate is 35%.

a. What is the net cost of the machine for capital budgetingpurposes? (That is, what is the Year-0 net cash flow?)

b. What are the net operating cash flows in Years 1, 2, and3?

c. What is the additional Year-3 cash flow (i.e., the after-taxsalvage and the return of

working capital)?d. If the project’s cost of capital is 12%, should the machine bepurchased?


Answer 1
Net cash flow at time 0=Net working cpitalInvestment +fixed capital Investment
Net cash outflow=108000+12500+5500
Net cash outflow= 126,000
Answer 2 Year Dep rate Dep expense
Net asset value= 120,500 1 33% 39,765
2 45% 54,225
3 15% 18,075
Total 112,065
Book value at year 3 120500-112065
Book value at year 3 8,435
1 2 3
Before tax operating cost 44,000 44,000 44,000
Less tax (15,400) (15,400) (15,400)
After tax operating cost 28,600 28,600 28,600
add depreciation 39,765 54,225 18,075
Cash flow 68,365 82,825 46,675
Answer 3
additional year 3 cash flow=salvage vale+networking capital-tax(salvage value-book value)
Year 3 additional cash flow= 5500+65000-0.35*(65000-8435)
Year 3 additional cash flow= 50,702
Answer 4 Project is acceptable because of positive NPV
Method 1
calculate NPV Using NPV Function in excel andsubtract Initial cash Outflow from it
Year Machine A
0 (126,000)
1 68,365
2 82,825
3 97,377
Discount rate 12%
NPV= 70,378.96
Method 2
Using Financial Calculator
Press CF
CF0= (126,000) (Press Enter and scroll down)
CF1= 68,365 (Press Enter and scroll down Twice)
CF2= 82,825 (Press Enter and scroll down Twice)
CF3= 97,377 (Press Enter and scroll down Twice)
Press NPV
Interest= 12% (Press Enter and scroll down)
NPV= 70,378.96

"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
Calculate the price
Make an order in advance and get the best price
Pages (550 words)
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with brilliantassignmenthelp.com
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Customer reviews in total
Current satisfaction rate
3 pages
Average paper length
Customers referred by a friend
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes