Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000...

  

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Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum required rate of return of 16% (the company's cost of capital). The accountant's computations follow: Cash inflows Cash outflows Net cash inflow Present value factor at 16% Present value of net cash inflow Initial cash outlay Net present value $ 90,000 30,000 $ 60,000 X 4.833 $289,980 225,000 $ 64,980 a. Are the accountant's computations correct? If not, compute the correct net present value. b. Is this capital project acceptable to the company? Why or why not? Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum required rate of return of 16% (the company's cost of capital). The accountant's computations follow: Cash inflows Cash outflows Net cash inflow Present value factor at 16% Present value of net cash inflow Initial cash outlay Net present value $ 90,000 30,000 $ 60,000 X 4.833 $289,980 225,000 $ 64,980 a. Are the accountant's computations correct? If not, compute the correct net present value. b. Is this capital project acceptable to the company? Why or why not? Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum required rate of return of 16% (the company's cost of capital). The accountant's computations follow: Cash inflows Cash outflows Net cash inflow Present value factor at 16% Present value of net cash inflow Initial cash outlay Net present value $ 90,000 30,000 $ 60,000 X 4.833 $289,980 225,000 $ 64,980 a. Are the accountant's computations correct? If not, compute the correct net present value. b. Is this capital project acceptable to the company? Why or why not? Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum required rate of return of 16% (the company's cost of capital). The accountant's computations follow: Cash inflows Cash outflows Net cash inflow Present value factor at 16% Present value of net cash inflow Initial cash outlay Net present value $ 90,000 30,000 $ 60,000 X 4.833 $289,980 225,000 $ 64,980 a. Are the accountant's computations correct? If not, compute the correct net present value. b. Is this capital project acceptable to the company? Why or why not?

Answer rating: 100% (QA)

The net present value of the machine is 225000 Heres how I arrived at the answer Firstcalculate the ... View the full answer