Reference no: EM132443421
Toots, Inc. is considering buying a new plant to produce a new product line. The plant costs $550,000, but it would cost another $50,000 to modify it for a proper use. If Toots purchase this plant, this will be depreciated over its 3-year MACRS life (assume 33%, 45%, 15%, and 7%). Toots estimates that annual revenues will increase by $400,000, and annual expenses (excluding depreciation) will increase by $150,000. This project will last 3 years, and the estimated salvage value of this plant after 3 years is $200,000. If the plant is purchased, the firm's inventory level should increase now () by $120,000. The firm's tax rate is 34%, and its cost of capital is 10%.
1. What is the initial () cash outflows?
2. What is the operating cash inflows at?
3. What is the operating cash inflows at?
4. What is the total cash inflows (operating cash flows plus terminal cash flows) at?
5. Compute the NPV and IRR of the project. Should this project be accepted?
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