Calculate the cash outflow at time zero

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Reference no: EM13270402

The Marchal Company is evaluting the proposed acquisition of a new machine. The machine base price is $250,000 and it would cost another $15,000 to modify it for special use. The machine fall into the MACRS 3 year class, and it would be sold after 2 years for $75,000. The machine would require an increase in net working of $5,000. The machine would have no effect on revenues, but it is expected to save the firm $100,000 per year for 2 years in before-tax operating costs.. Campbell's marginal tax rate is 30 percent and it cost of capital is 10 percent.

a. calculate the cash outflow at time zero
b. calculate the net operating flows for Years 1 and 2
c Calculate the non-operating terminal year cash flow
d calculate NPV. Should the machinery be purchased. Why or why not?

Reference no: EM13270402

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