Question: 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

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, aer which it will have no salvage value. Assume that straight-line depreciation is used. The rm's cost of capital is 10% and the firm's tax rate is 25%. (1) What is the initial outlay associated with this project? (2) What are the annual arr-tax cash ows associated with this project for years 1 to 5'? (3) Should this machine be purchased? {P'VIFw-m 416209, PVIFAw-m = 3.7903)

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