5. ABC Inc would like to purchase equipment for $50,000. Shipping and installation will be an...

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5. ABC Inc would like to purchase equipment for $50,000. Shipping and installation will be an additional $10,000. This equipment would be depreciated using straight-line over its 5 year economic life. During the first year of operations they expect total revenue to increase by $15,000, increase in year 2 by $25,000, year 3 increase by $30,000, year 4 increase by $35,000 and in year 5 by $15,000. The incremental increase in operating expenses are expected to be $5,000 each of the 5 years. ABC has a marginal tax rate of 40%. Find the initial outlay and annual net cash flows. Find NPV assuming a 12% cost of capital. 5. ABC Inc would like to purchase equipment for $50,000. Shipping and installation will be an additional $10,000. This equipment would be depreciated using straight-line over its 5 year economic life. During the first year of operations they expect total revenue to increase by $15,000, increase in year 2 by $25,000, year 3 increase by $30,000, year 4 increase by $35,000 and in year 5 by $15,000. The incremental increase in operating expenses are expected to be $5,000 each of the 5 years. ABC has a marginal tax rate of 40%. Find the initial outlay and annual net cash flows. Find NPV assuming a 12% cost of capital.

Answer rating: 100% (QA)

To calculate the initial outlay and annual net cash flows we need to consider the initial cost addit... View the full answer