22 Jul WHAT ARE THE OPERATING CASH FLOWS EACH YEAR?
You have been asked by the president of your company to evaluate the proposed acquisition of a new s Show more You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose machine. The machines basic price is $500000 and our accountant requires that it be written off over its 5 year class using straight line depreciation to a book value of $0. Purchase of the machine would require an increase in net working capital of $40000 at t=0 only. The machine would increase the firms before tax revenues by $960000 per year but would also increase operating costs by $100000 per year. It is expected to be used for 3 years and then be sold for $600000. The firms marginal tax rate is 40 percent and the projects cost of capital is 18 percent. (Please show your work) a) What is the net investment required at t=0? b) What are the operating cash flows each year? c) What is the total value of ending (non operating) cash flow in year 3? d) What is the projects NPV? Show less
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