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V. Comprehensive problems. (35%) Score 1. (18%) Pural Co. is considering the purchase of a new machine for $900,000 and the installation cost would be $100,000. For the coming 5 years, sales will be $840,000 per year and annual operating costs (exclusive of depreciation) will be $500,000. The purchase of this machine would necessitate an increase in inventory of $100,000. This machine has an expected life of 5 years, after which it will have no salvage value. Assume that straight-line depreciation is used. The rm's cost of capital is 10% and the rm's tax rate is 25%. (1) What is the initial outlay associated with this project? (2) What are the annual after-tax cash flows associated with this project for years 1 to 5? (3) ShOuld this machine be purchased? (PVIFIO%,S =0.6209, PVLFA10%,5 = 3.7908) (12%) Geler co. now has an investment plan which needs 8 million dollars. The company has two nancing proposals. Plan A is to borrow $2million at 10% and $6 million will need to sell stocks at $40 per common share. Plan B would involve a higher nancial leverage. $4 million would be raised by selling bonds with an interest rate of 10% and the remaining $4 million would be raised by selling common stock at the $40 price per share. The corporate tax rate is 25%. (1) Find the EBIT indifference level associated with the two nancing plans. (2) If a detailed nancial analysis project that long-term EBIT will be in the range of $1 million to 1.5 million annually, which plan will generate higher EPS? (3) If the xed cost is $500,000, please calculate DOL, DFL and DCL at the point of EBIT being $1 million under plan B