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E G H B Relevant Cash Flows of Proposed Machine Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Initial Investment $ 12.700 $ 22,320 $ 25,315 $ 23,620 S 23,620 Incremental Operating Cash Flows Terminal Cash Flow 06100 Total Cash Flows $ (92,125) $ 12,700 $ 22,320 $ 25,315 $ 23,620 S 51.120 Enter a CELL REFERENCE to the previous sheets in this workbook Enter the NUMBER from your previous assignment HINT: make sure all the signage is appropriate - negative if an outflow and positive if an inflow Also make sure you understand what each formula is doing! Net Present Value (NPV) of the cash flows Calculate this number using either a financial calculator or with an Excel formula, Should Damon Corp invest in the new machine? NO Enter YES or NO 1040 The paragraphs below include information that will be incorporated over a series of assignments during the last 5-6 weeks of the semester. See "TO DO" sec Damon Corporation, a sports equipment manufacturer, has a machine currently in use that was originally purchased 3 years ago for $125,000. The firm depreciates the machine under MACRS using a 5-year recovery period. Once removal and cleanup costs are taken into consideration, the expected net selling price for the present machine will be $70,000. Damon can buy a new machine for a net price of $170,000 (including installation costs of $15,000). The proposed machine will be depreciated under MACRS using a 5-year recovery period. If the firm acquires the new machine its working capital needs will change: Accounts receivable will increase $15,000, inventory will increase $19,000, and accounts payable will increase $15,000 Earnings before depreciation, Interest, and taxes (EBDIT) for the present machine are expected to be $95,000 for each of the successive 5 years. For the proposed machine, the expected EBDIT for each of the next 5 years are $105,000 $110,000, 5120,000, $120,000, and $120,000, respectively. The corporate tax rate (T) for the firm is 40% (Table 4.2 on page 120 contains the applicable MACAS depreciation percentages) Damon expects to be able to liquidate the proposed machine at the end of its 5-year usable life for $24,000 (after paying removal and cleanup costs). The present machine is expected to net $8,000 upon liquidation at the end of same period. Damon expects to recover its net working capital investment upon termination of the project. The firm is subject to a tax rate of 30% 1 2 3 4 5 TO DO FOR PART 3