Reference no: EM132963632
Question - Puree Ltd is considering the purchase of a new equipment. The equipment costs $350 000, and an additional $110 000 is needed to install it.
The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of $235 000, and it will have annual cash operating expenses of $83 000. The equipment will be sold for $75 000 after 5 years.
To purchase the new machine the company will have to borrow $200,000 at 5.0 per cent interest from the bank, which will require interest payments each year.
The company tax rate is 30 per cent, and tax is paid in the year of income.
The company's cost of capital is 8 per cent.
Required -
-Calculate the initial outlay associated with the project.
-Calculate the annual after-tax cash flows for years 1-4.
-Calculate the after-tax cash flow in year 5.
-Calculate the Net Present Value.
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