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It costs $ 7 9 , 0 0 0 to purchase and install a new machine that

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Question:

It costs $79,000 to purchase and install a new machine that will let the company cut costs for 5 years. The machine will be depreciated linearly to zero over 10 years, and can be sold for $11,850 after 5 years.
Every year starting right now, the project requires an investment of $5,000 for net working capital. After 5 years, the stock of net working capital will be recouped.
The marginal tax rate is 35% and the required return is 15%.
Attempt 3/6 for 8 pts.
Part 1
What is the after-tax salvage value of the machine in year 5?
16402
Correct
Annual depreciation:
D = C0/10
=79,000/10
=7,900
Book value in year 5:
BV5= C0- N * D
=79,000-5*7,900
=39,500
After-tax salvage value in year 5:
ATSV = SV - t (SV - BV)
=11,850-0.35(11,850-39,500)
=21,528
Attempt 2/6 for 8 pts.
Part 2
What is the present value of operating cash flows (EBIT(1-t)+ Dep.) to break even?
0+ decimals
Attempt 3/6 for 10 pts.
Part 3
At what level of annual operating cash flows (OCF) does the project break even?
0+ decimals
Attempt 2/6 for 10 pts.
Part 4
At what level of annual cost savings does the project break even?

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