Calculate the incremental after-tax cash flow in year one

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Reference no: EM131186396

P.D. Corporation is considering the purchase of a high-speed lathe that has an invoice price of $250,000. The cost to ship the lathe to P.D.'s factory is $10,000, and the existing facilities will require modifications that are expected to cost $20,000. The machine will be depreciated on a straight-line basis over its useful life of 10 years, assuming no salvage value. P.D. Corporation is planning on paying for the lathe using a line of credit at the bank that has an interest rate of 6 percent per year. The lathe is expected to increase production and sales. Sales are expected to increase by $100,000 per year. Inventory and accounts receivable balances are expected to increase by $10,000 and $20,000 respectively. Expenses to operate the lathe are $25,000 per year. P.D.'s marginal tax rate is 40%.

a) calculate the initial outlay required to fund this project

b) calculate the incremental after-tax cash flow in year one of the project.

Reference no: EM131186396

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