Reference no: EM132284821
(Calculating project cash flows and? NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of ?$ 65,000 per year. The machine has a purchase price of ?$ 350,000?, and it would cost an additional ?$ 6,000 after tax to install this machine correctly. In? addition, to operate this machine? properly, inventory must be increased by ?$ 18,000. This machine has an expected life of 10 ?years, after which time it will have no salvage value. ?Also, assume simplified? straight-line depreciation, that this machine is being depreciated down to? zero, a 38 percent marginal tax? rate, and a required rate of return of 12 percent.
a. What is the initial outlay associated with this? project?
b. What are the annual? after-tax cash flows associated with this project for years 1 through 9??
c. What is the terminal cash flow in year 10 ?(that is, the annual? after-tax cash flow in year 10 plus any additional cash flow associated with termination of the? project)?
d. Should this machine be? purchased?
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