Reference no: EM132584074

DY CORP. Is replacing an old machine that has a book value of 30,000 and the company anticipated that it could sell that machine at $25,000. And the new machine needed for the business will cost DY. CORP., of $275,000 and $15,000 charge for shipping and installations. Finally the firm will have to provide for initial net working capital in the amount of $50,000( $30,000 cash balance, $20,000 inventories). The Tax rate is 40%. Marketing Analysis indicates the following revenue stream can be generated over the next 5 years:

YEAR             YEAR 2             YEAR 3           YEAR4          YEAR 5

$250,000      $300,000        $325,000        $300,000      $225,000

Sales are expected to increase at first, and then to decline as competitors introduce similar improvements to their products.

Question 1: Cash Operating costs are estimated to equal to 45% of the revenues. The Operating Cost includes cost of manufacturing and overhead expenses such as salaries utilities, advertising and rent.