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Determine initial cash outflow

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Reference no: EM132726299

A firm is considering buying a new machine that has a 5 year life.

They plan to close the plant down after 4 years.

Purchase Price: $ 700,000
Increase in working capital: $ 150,000
Annual sales: $ 1,400,000
Annual operating cost: $ 900,000
Annual interest expense: $ 150,000
Depreciation: $160,000 per year.

It is estimated that the machine will be sold for $30,000 after 4 years.

Tax rate is 30% and the cost of capital is 10%.

A. Determine initial cash outflow

B. Determine Operational Cash Flows

C. Determine cash inflow from the sale of the machine after four years.

D. Determine NPV. Should they buy the machine using the NPV rule?

Reference no: EM132726299

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