Calculate the initial outlay required to fund this project

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Mahya Corporation is considering the purchase of a high-speed lathe that has an invoice price of $300,000. The cost to ship the lathe to Mahya's factory is $50,000, and the existing facilities will require modifications that are expected to cost $50,000. The machine will be depreciated on a straight-line basis over its useful life of 10 years, assuming no salvage value. Mahya 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 $150,000 per year.

  • $20,000 is needed for the additional networking capital. Expenses to operate the lathe are $25,000 per year. Mahya's marginal tax rate is 40%.

Question a. Calculate the initial outlay required to fund this project.

Question b. Calculate the incremental after-tax cash flow in year one of the project.

Reference no: EM132504603

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