jodi week 4

Project Description:

damon corporation, a sports equipment manufacturer, has a machine currently in use that was originally purchased 3 years ago for $120,000. the firm depreciates the machine under macrs using a 5-year recovery period. once removal and cleanup costs are taken into consideration, the expected net selling price for the present machine will be $70,000.

damon can buy a new machine for a net price of $160,000 (including installation costs of $15,000). the proposed machine will be depreciated under macrs using a 5-year recovery period. if the firm acquires the new machine, its working capital needs will change: accounts receivable will increase $15,000, inventory will increase $19,000, and accounts payable will increase $16,000.

earnings before depreciation, interest, and taxes (ebdit) for the present machine are expected to be $95,000 for each of the successive 5 years. for the proposed machine, the expected ebdit for each of the next 5 years are $105,000, $110,000, $120,000, $120,000, and $120,000, respectively. the corporate tax rate (t) for the firm is 40%. (table 4.2 on page 120 contains the applicable macrs depreciation percentages.)

damon expects to be able to liquidate the proposed machine at the end of its 5-year usable life for $24,000 (after paying removal and cleanup costs). the present machine is expected to net $8,000 upon liquidation at the end of the same period. damon expects to recover its net working capital investment upon termination of the project. the firm is subject to a tax rate of 40%.

to do

create a spreadsheet similar to tables 11.1, 11.5, 11.7, and 11.9 to answer the following:

create a spreadsheet to calculate the initial investment.
create a spreadsheet to prepare a depreciation schedule for both the proposed and the present machine. both machines are depreciated under macrs using a 5-year recovery period. remember that the present machine has only 3 years of depreciation remaining.
create a spreadsheet to calculate the operating cash flows for damon corporation for both the proposed and the present machine.
create a spreadsheet to calculate the terminal cash flow associated with the project.
Skills Required:
Project Stats:

Price Type: Fixed

Project Budget: $0 to $10
Expired
Total Proposals: 7
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