Considering introducing a new prepackaged mixed drink

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Jimmy Buffet, Warren's more famous cousin, is considering introducing a new prepackaged mixed drink- the margaritaville margarita miz. Each 1.75 liter bottle costs $2.00 to make and will wholesale $7.00. Packaging machinery will cost $100,000, including shipping and installation. Sales are expected to be 100,000 bottles per year for 4 years after which the people will be tired of drinking margaritas, the equipment will be sold, and the production line will shut down. The equipment will be sold for $60,000 at the end of 4 years. The machinery will be depreciated using the 5-year MACRS depreciation schedule, shown below. Working Capital in the amount of 11% sales will be required at the begininng of the year. Jimmy's tax rate is 40%.

Year 1 2 3 4 5 6

Depreciation % 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%

Calculate the after tax salvage value cashflow

a. 38,922

b. 40,869

c. 42,912

d. 45,058

e. 47,310

Reference no: EM131904299

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