Louie's Leisure Products is considering a project which will require the purchase of $1.3 million in...

  

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Louie's Leisure Products is considering a project which will require the purchase of $1.3 million in new equipment. Shipping and installation will be an additional $100,000. For tax purposes, the equipment will be depreciated straight-line to a salvage value of $175,000 over the 7-year life of the project. The expected sales from this project is 1.2 million a year. Net working capital equal to 20 percent of sales will be required to support the project. What is the depreciation expense of this project in Year 4? You are considering a new project that requires $300,000 investment in a machine, including installation and shipping cost. The life of the machine is three years, and it depreciates via 3-year MACRS methods (33.33%, 44.45%, 14.81%, and 7.41%). If you operate this project, the annual sales of the firm increases by $250,000 a year, and the annual operating expense increased by $100,000. The firm has a marginal tax rate of 34%. In order to start the project, the firm has to invest $30,000 in working capital. The expected market value of the machine is $50,000 in three years when the project is terminated. What is the annual cash flow of this project in the first year? Louie's Leisure Products is considering a project which will require the purchase of $1.3 million in new equipment. Shipping and installation will be an additional $100,000. For tax purposes, the equipment will be depreciated straight-line to a salvage value of $175,000 over the 7-year life of the project. The expected sales from this project is 1.2 million a year. Net working capital equal to 20 percent of sales will be required to support the project. What is the depreciation expense of this project in Year 4? You are considering a new project that requires $300,000 investment in a machine, including installation and shipping cost. The life of the machine is three years, and it depreciates via 3-year MACRS methods (33.33%, 44.45%, 14.81%, and 7.41%). If you operate this project, the annual sales of the firm increases by $250,000 a year, and the annual operating expense increased by $100,000. The firm has a marginal tax rate of 34%. In order to start the project, the firm has to invest $30,000 in working capital. The expected market value of the machine is $50,000 in three years when the project is terminated. What is the annual cash flow of this project in the first year?

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Answer To calculate the depreciation expense of the projects in Year 4 we need to consider the depre... View the full answer