Reference no: EM133066454

Question - Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $140,000. A new building will cost $150,000 and will be depreciated on a straight-line basis over 16 years to a salvage value of $0. Actual land salvage at the end of 16 years is expected to be $230,000. Actual building salvage at the end of 16 years is expected to be $220,000. Equipment for the facility is expected to cost $220,000. Installation costs will be an additional $50,000 and shipping costs will be $10,000. This equipment will be depreciated as a 7-year MACRS asset. Actual estimated salvage at the end of 16 years is $0. The project will require net working capital of $80,000 initially (year 0), an additional $45,000 at the end of year 1, and an additional $45,000 at the end of year 2. The project is expected to generate increased EBIT (operating income) for the firm of $80,000 during year 1. Annual EBIT is expected to grow at a rate of 3 percent per year until the project terminates at the end of year 16. The marginal tax rate is 40 percent. Use Table 9A-3 and Table I to answer the questions below. Round your answers to the nearest dollar.

Compute the initial net investment.

Compute the annual net cash flow from the project in year 16.