XYZ Co is considering to purchase equipment that has 4 years of life and requires an...

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XYZ Co is considering to purchase equipment that has 4 years of life and requires an initial capital outlay of $50 million. The equipment will be depreciated using straight line method to zero book value in 4 years. The salvage value of the equipment is expected to be $8 million in four years. The equipment is expected to increase revenue by $14 million and decrease expenses by $4 million each year over the next four years. XYZ has an income tax rate of 20%. 1. Determine the initial cash flow of the investment at time 0. 2. Determine the operating cash flows of the investment for the next three years. 3. Determine the terminal cash flow of the investment in year four. XYZ Co is considering to purchase equipment that has 4 years of life and requires an initial capital outlay of $50 million. The equipment will be depreciated using straight line method to zero book value in 4 years. The salvage value of the equipment is expected to be $8 million in four years. The equipment is expected to increase revenue by $14 million and decrease expenses by $4 million each year over the next four years. XYZ has an income tax rate of 20%. 1. Determine the initial cash flow of the investment at time 0. 2. Determine the operating cash flows of the investment for the next three years. 3. Determine the terminal cash flow of the investment in year four.

Answer rating: 100% (QA)

To calculate the cash flows for the investment we need to consider the initial cash flow operating c... View the full answer