Calculate the net cash flows for each year

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XYZ Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Jonny, a recently graduated MBA. The production line would be set up in unused space in XYZ main plant. The machinery's invoice price would be approximately $200,000, and it would cost an additional $40,000 to install the equipment. The machinery has an economic life of 4 years, and machine equipment would be depreciated over 4-year using straight line basis depreciation. The machinery is expected to have a salvage value after tax of $25,000 after 4 years of use.

The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit. Each unit can be sold for $200. Further, to handle the new line, the firm's net working capital would have an amount equal to 12% of sales revenues. The firm's tax rate is 40%, and its overall weighted average cost of capital is 10%. Calculate the net cash flows for each year. Based on these cash flows, what are the project's NPV, IRR, MIRR, and payback.

Reference no: EM131340281

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