cial decision. 2 4. You as the manager of Vertex Company have been asked by your...

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cial decision. 2 4. You as the manager of Vertex Company have been asked by your president to purchase a machine for your production department. A new machine can be purchased for Tk. 5,50,000 with the estimated life of four years, and it would cost another Tk. 50,000 to set up the machine. It is expected that the machine would be sold after four years for Tk. 70,000. The machine will fall into the MACRS three- year class, which is: Y - 33 %, Y2 - 45 %, Y3 - 15 %, and Y4-7%. Use of this machine would require an increase in net working capital of Tk 13,000. The machine would have no effect on revenues, but it is expected to save the firm Tk 2,25,000 per year in before tax operating costs. The firm marginal tax rate is 34 %. i) If the new machine is purchased, what is the amount of the initial investment outlay at year Yo? ii) Determine the incremental operating cash flows for years I through year 4. iii) What is the terminal cash flow at the end of year 4? 8 cial decision. 2 4. You as the manager of Vertex Company have been asked by your president to purchase a machine for your production department. A new machine can be purchased for Tk. 5,50,000 with the estimated life of four years, and it would cost another Tk. 50,000 to set up the machine. It is expected that the machine would be sold after four years for Tk. 70,000. The machine will fall into the MACRS three- year class, which is: Y - 33 %, Y2 - 45 %, Y3 - 15 %, and Y4-7%. Use of this machine would require an increase in net working capital of Tk 13,000. The machine would have no effect on revenues, but it is expected to save the firm Tk 2,25,000 per year in before tax operating costs. The firm marginal tax rate is 34 %. i) If the new machine is purchased, what is the amount of the initial investment outlay at year Yo? ii) Determine the incremental operating cash flows for years I through year 4. iii) What is the terminal cash flow at the end of year 4? 8

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i Initial investment outlay at year 0 Cost of machine ... View the full answer