purchase of a chemical analysis machine. The purchase of this machine will result in an inc earnings before interest and taxes of $80,000 per year. The machine has a purchase price $100,000, and it would cost an additional $6,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $14,000. This has an expected life of 10 years, after which time it will have no salvage value. Also, assum simplified straight-line depreciation, that this machine is being depreciated down to zero, a 3 percent marginal tax rate, and a required rate of return of 9 percent. a. What is the initial outlay associated with this project? b. What are the annual after-tax cash flows associated with this project for years 1 through c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 1 any additional cash flow associated with termination of the project)?
purchase of a chemical analysis machine. The purchase of this machine will result in an inc earnings before interest and taxes of $80,000 per year. The machine has a purchase price $100,000, and it would cost an additional $6,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $14,000. This has an expected life of 10 years, after which time it will have no salvage value. Also, assum simplified straight-line depreciation, that this machine is being depreciated down to zero, a 3 percent marginal tax rate, and a required rate of return of 9 percent. a. What is the initial outlay associated with this project? b. What are the annual after-tax cash flows associated with this project for years 1 through c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 1 any additional cash flow associated with termination of the project)?
Chapter14: Capital Structure Management In Practice
Section14.A: Breakeven Analysis
Problem 8P
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