Describe capital budgeting decision based on present value

Assignment Help Finance Basics

Reference no: EM1312973

Describe Capital budgeting decision based on net present value

XYZ Company is considering replacing a printing machine. The old machine can be sold for $450,000, it has a book value of $300,000 and its remaining useful life is 3 years with zero expected salvage value and has been depreciated by $100,000 per year, using the straight line method. The new machine will cost $1,000,000. It will be depreciated by the straight line method over a 4-years recovery period with an expected salvage value of $150,000, and it require an increase in net working capital of $95,000. Annual saving of electricity, labor and materials from use of the new machine is estimated at $395,000. The company is in a 35 percent tax bracket, and its cost of capital is 10.5 percent.

a. What is the initial outlay (cash flow)?

b. What are the annual cash flows?

c. Should the new machine be purchased?

Reference no: EM1312973

Questions Cloud

Compute present value and the internal rate : Compute present value and the internal rate or return for the new product line - outlay for working capital will be recovered at the end of six year. Aunt Sally's tax rate is 34% and the firm requires 16% return.

Describe capital budgeting decision : Describe Capital budgeting decision based on net present value and Should the new machine be purchased

Find the forecast for robert''s year-end net income : The tax rate is expected to remain at 40 percent and On the basis of this information, what will be the forecast for Robert's year-end net income?

Mcq on mortgage loans and federal reserve bank : The nation is divided into __12______ Federal Reserve districts, each having a Federal Reserve Bank.

Describe capital budgeting decision based on present value : Describe Capital budgeting decision based on net present value of XYZ Company is considering replacing a printing machine

To forecast additional funds needed using afn equation : To forecast Additional funds needed using AFN equation - Use the AFN equation to forecast Carter's additional funds needed for the coming year.

Alga has invaded waters of california : The U.S government has placed this strain of C.taxifolia on noxious weed list, which means that any possible source of the contamination of the weed will be highly restricted. Shipments that contain any kind of C.taxifolia and pass through an area wh..

Ungrouped frequency distribution : A survey taken in a restaurant shows the following number of cups of coffee consumed with each meal. Construct an ungrouped frequency distribution.

Preparation of cash budget : Preparation of Cash Budget and interpreting the cash position of the company

User Account

All Pages