25 Jul WHAT ARE THE OPERATING CASH FLOWS ASSOCIATED WITH THIS PROJECT FOR YEARS 1 THROUGH 9?
Temper Motors is considering the purchase of a new production machine for $1 million delivered. The Show more Temper Motors is considering the purchase of a new production machine for $1 million delivered. The purchase of this machine will result in an increase in EBIT of $400000 per year. To operate this machine properly workers have to go through a brief training session that would cost $100000. In addition it would cost $50000 to install this machine properly. Also because this machine is extremely efficient its purchase would necessitate an increase in inventory of $150000. This machine has an expected life of 10 years after which it will have no salvage value. Assume straight line depreciation and that this machine will depreciate to zero a 34 percent marginal tax rate and a required rate of return of 12 percent. What is the Initial Capital Investment associated with this project? The Initial capital investment associated with this project would be purchase price of a new production machine for $ 1 million ($1000000). What are the Operating Cash Flows associated with this project for years 1 through 9? What is the Cash Flow at Disposal in year 10? What is the NPV? Should this machine be purchased? Why? Show less
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