Capital would be recovered at the end of the project

Assignment Help Finance Basics

Reference no: EM13829960

The equipment cost is $50,000 and it would cost another $10,000 to modify it. Assume that the equipment falls into the MACRS 3-year class. The equipment will be sold after 3 years for $20,000. It would require an increase in net working capital of $2,000 at teh start of the project. This working capital would be recovered at the end of the project. The new project will not have an effect on revenues but it is expected to save the firm $20,000 per year in before-tax operating costs, mainly labor. The tax rate is 40%.

What is the cash flow at time=0?
What are the operating cash flows in Years 1-3?
What is the terminal cash flow in Year 3?
What is the book value of the asset at the end of Year 2?
What is the depreciation expense for Year 2?
Assume the cost of capital is 10%. What are the NPV and IRR of the project? Should the equipment be purchased?

Reference no: EM13829960

Questions Cloud

High risk for identity theft : The close quarters of most college dormitories means college students are at a high risk for identity theft.

Illustrate the interaction between different forces : Explain how the six external forces could combine/integrate together to have more complex effects on changes in the workplace. For example, technological changes could accelerate reorganization of work. Give some real examples to illustrate the inter..

Message aligns with the material covered thus far : Discuss a time when you have had to deal with a sensitive and/or a negative message. What would you do differently in light of the material covered in this module? If you would do nothing differently, describe how your handling of the message aligns ..

Liquidity ratios : Liquidity Ratios Current ratio [current assets / current liabilities] Quick ratio [(current assets - inventory) / current liabilities]

Capital would be recovered at the end of the project : The equipment cost is $50,000 and it would cost another $10,000 to modify it. Assume that the equipment falls into the MACRS 3-year class. The equipment will be sold after 3 years for $20,000. It would require an increase in net working capital of $2..

Price falls below minimum average variable cost : Why does it make sense for a firm to shut down in the short run if the price falls below minimum average variable cost?

What problem is the economy facing : What problem is the economy facing? Assume you are a governor on the Federal Reserve Board of Governors. What type of policy (easy money or tight money) would you recommend to fix the problem you identified in question 1? Which tool(s) would you reco..

Therefore shift the aggregate supply curve to the left : Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

In terms of average per-drug profit : What is the average time period for the introduction of a new drug into market? Which drug is likely to be the most profitable for its producer (in terms of average “per-drug” profit)? Which one of the following basic findings about for-profits is no..

User Account

All Pages