The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of

$ 32 comma 000

per year, it has a purchase price of

$110 comma 000

,

and it would cost an additional

$6 comma 000

after tax to correctly install this machine. In addition, to properly operate this machine, inventory must be increased by

$5 comma 500

.

This machine has an expected life of

10

years, after which it will have no salvage value. Also, assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a

36

percent marginal tax rate, and a required rate of return of

13

percent.

a.What is the initial outlay associated with this project?

b.What are the annual after-tax cash flows associated with this project for years 1 through

9

?

c.What is the terminal cash flow in year

10

(that is, the annual after-tax cash flow in year

10

plus any additional cash flows associated with termination of the project)?

d.Should this machine be purchased?

a.The initial cash outlay associated with this project is