Roten Manufacturing Company is considering an investment on a machine for producing auto parts. The machine costs $250,000 today, will have a five-year life and will be depreciated over a five-year life on a straight-line basis toward a zero salvage value. The company paid a consulting company $7,000 last year to help them decide whether there is a sufficient demand for the auto parts. In addition to the investment on the machine, the company also invests $15,000 in net working capital. The company has estimated the performance of the new machine and believes the following are good estimates of the new asset: sales $140,000 per year, cost of goods sold (35% of sales) per year, and administrative expenses $15,000 per year. The company pays interest $20,000 annually on average, has a 10% cost of capital and a 30% tax rate. Answer Questions 1 - 8.

Should Roten include consulting fee, $7,000, in estimating project's cash flows?

a.

Yes

.

No

Question 2

What is the project cash flow at Year 0?

a.

-$203,000

b.

-$250,000

c.

-$15,000

.

-$265,000

3.What is the project cash flow at Year 5?

a.

$68,200

b.

$83,200

c.

$74,000

d.

$50,500

Question 4

What is payback period for the project?

	a.	4.51 years
	b.	3.78 years
	c.	4.02 years
	d.	3.89 years