(Calculating project cash flows and NPV) The Guo Chemical Corporation is considering the purchase of a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
(Calculating project cash flows and NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of $75,000 per year. The machine has a purchase price of $300,000, and it would cost an additional $8,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $16,000. This machine has an expected life of 10 years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a 38 percent marginal tax rate, and a required rate of return of 14 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 9? c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plus any additional cash flow associated with termination of the project)? d. Should this machine be purchased? a. The initial cash outlay associated with this project is $ (Round to the nearest dollar.) (Calculating project cash flows and NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of $75,000 per year. The machine has a purchase price of $300,000, and it would cost an additional $8,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $16,000. This machine has an expected life of 10 years, after which time it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a 38 percent marginal tax rate, and a required rate of return of 14 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 9? c. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plus any additional cash flow associated with termination of the project)? d. Should this machine be purchased? a. The initial cash outlay associated with this project is $ (Round to the nearest dollar.)
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Farley, Inc., is a manufacturer that produces customized computer components for several wellknown computer-assembly companies. Farleys latest contract with CompWest.com calls for Farley to deliver...
-
An object of mass m is supported by a vertical spring of force constant 1800 N/m. When pulled down 2.5 cm from equilibrium and released from rest, the object oscillates at 5.5 Hz. (a) Find m. (b)...
-
How is an array stored in main memory? How is a linked list stored in main memory? What are their comparative advantages and disadvantages? Give examples of data that would be best stored as an array...
-
Ambassador Watch Company budgeted the following costs for anticipated production for April 2002: Prepare a factory overhead cost budget, separating variable and fixed costs. Assume that all indirect...
-
Write a job description for Kelvin Urich, the project manager described in the opening vignette of this chapter. Be sure to identify key characteristics of the ideal candidate, as well as his or her...
-
Ratio Analysis Presented below are summary financial data from Porter's annual report: Amounts in millions Balance Sheet Cash and Cash Equivalents $1,850 Marketable Securities 19,100 Accounts...
-
Clothing Frontiers began operations on January 1 and engages in the following transactions during the year related to stockholders' equity. January 1 Issues 600 shares of common stock for $40 per...
-
Find the value of $800 deposited in a bank at 8% interest for 6 years compounded in the following ways. (Round your answers to the nearest cent.) (a) annually $ (b) quarterly $ (c) continuously
-
Question 1 1.5 Points Find the standard deviation of the following dataset (parking violation count for five CJ students). Round to 4 decimal places. 2 A 1.3562 B 1.2247 1.0568 D 1.5624 3 3 3 5 5
-
What are the implications of transformational leadership on employee engagement and innovation, and how can leaders balance transformational and transactional styles for optimal organizational...
-
For each of the following, you must show all necessary steps to receive full credit (where appropriate). This HW is worth 10 points. Not all problems may be graded. 1. possible: a) Three married...
-
What are the ethical implications of using behavioral economics principles to influence employee decision-making and productivity within organizations ?
-
1. Is Jim headed for trouble? What would be some physical, psychological, and behavioral outcomes of this type of job stress? 2 What could the comydoto leducethe tress n Jin\'s lo0? 3. What...
-
Conduct a VRIO analysis by ranking Husson University (in Maine) business school in terms of the following six dimensions relative to the top three rival schools. If you were the dean with a limited...
-
A production function shows the relationship between a. variable inputs and fixed inputs. b. variable inputs and output. c. costs and output. d. inputs and costs. e. production and sales revenue.
-
Production in the short run a. is subject to diminishing marginal product. b. involves some fixed factors. c. can be increased by employing another unit of a variable input, as long as the marginal...
-
Diminishing marginal productivity in a frozen-pizza company means that a. hiring additional workers causes the total output of pizza to fall. b. hiring additional workers does not change the total...
Study smarter with the SolutionInn App