Calculate the net investment and net after-tax cash flows

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Reference no: EM131628497

Jivanka Industries is considering purchasing a new milling machine from Russia that costs $100,000. The machine’s installation and shipping costs will total $20,000. If accepted, the milling machine project will require an initial net working capital investment of $30,000 (all working capital will be returned at the end of the project). Jivanka plans to fully depreciate the machine on a straight-line basis over a period of eight years (the length of the project). An additional working capital investment of $10,000 will need to be made during year 3. The new milling machine will allow for incremental revenue of $60,000 in year 1, growing 8% (compounded) for the length of the project. This extra revenue will require extra expenses (excluding depreciation) of $30,000 in year 1, growing 5% (compounded) for the length of the project. The firm’s marginal tax rate is 40%. At the end of the project the milling machine will be sold for $40,000. Calculate the net investment and the net after-tax cash flows of the project for each year.

Reference no: EM131628497

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