Reference no: EM132049052

Harmac Medical Products, Inc. is a medical device contract manufacturer in the Buffalo area. They are considering purchasing a new blow molding machine to produce an innovative medical waste disposal container for a new customer. The blow molding machine will cost $54,000 to purchase and place into service. Harmac will borrow the full cost basis of the machine from a local bank. The loan has a 12% interest rate, compounded annually, and will repay the loan with six equal end-of-the-year payments. The blow molding machine is classified as a seven-year MACRS class asset. Harmac only has a six year contract with their customer to manufacture this product therefore they have estimated the blow molding machine will have a $4,000 salvage value at this end of this contract period. After some evaluation, the operations team has determined that an initial investment in working capital ($5,000) is needed at the start of the project (year 0) which will be fully recovered at the end of year 6. They have also estimated that revenues from the sale of these new disposal containers to be $15,600 per year for each year of the project. Harmac has a marginal tax rate of 27% and a MARR of 15%. (a) Determine the after-tax cash flows for this project over the six year project period. Note: You must show all unique calculations. For repetitive calculations – i.e. things you will calculate for each year of the project in the exact same way – you only need to show one representative calculation. (b) Should Harmac invest in this project? Use a NPW approach to support your decision.