Cobrots Corporation is considering the purchase of a new production machine for $18,000,000, the machine will incur
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Cobrots Corporation is considering the purchase of a new production machine for $18,000,000, the machine will incur shipping cost of $200,000, installation of $300,000 and site preparation of $500,000. The machine is expected to last for 4 years. At the end of the 4 years, the machine has a salvage value of $200,000. The purchase of this machine would result in revenue over the period respectively.
Yr. 1 $37,500,000
Yr. 2 $42,500,000
Yr. 3 $35,000,000
Yr. 4 $37,500,000
The cost of good sold is 25% of the revenue for each of the 4 years. Yearly operating cost is $13,000,000. The firm uses a 34% marginal tax rate and the annual rate of return is 15%.
- a. What is the initial cost outlay associated with this project?
- b. What is the annual net cash flows associated with this project?
- c. What is the NPV of the project?
- d. Should this machine be purchased? Justify your response.
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
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