Determine the project cash flows in actual dollars

Assignment Help Financial Management

Reference no: EM131958049

J. F. Manning Metal Company is considering the purchase of a new milling machine during year 0. The machine's base price is $135,000 and it will cost another $15,000 to modify the machine for special use by the firm, resulting in a $150,000 cost base for depreciation.

The machine falls into the MACRS seven-year property class. The machine will be sold after three years for $80,000 (actual dollars).Use of the machine will require an increase in net working capital (inventory) of $10,000 at the beginning of the project year.

The machine will have no effect on revenues, but it is expected to save the firm $80,000 (today's dollars) per year in before-tax operating costs - mainly labor. The firm's marginal tax rate is 40% and this rate is expected to remain unchanged over the project's duration.

However, the company expects that the labor cost will increase at an annual rate of 5% and that the working capital requirement will grow at an annual rate of 8% caused by inflation. The selling price of the milling machine in not affected by inflation.

The general inflation rate is estimated to be 6% per year over the project period. The firm's market interest rate is 20%.

Determine the project cash flows in actual dollars.

Determine the project cash flows in constant (time-zone) dollars.

Is this project acceptable?

Reference no: EM131958049

Questions Cloud

What is the proposed new value enof j and v : Suppose J&V plans to issue a new bond in total of $20,000, given a tax rate of 30%, what is the proposed new value enof J&V.

Calculate the price of share of the company common stock : Calculate the price of a share of the company's common stock.

Common equity on firm balance sheet : Common equity on the firm’s balance sheet is 60% of its total assets. What is its net income?

Write about Socio- economic aspect of rising house prices : Write on given topic. Topic - Socio- economic aspect of rising house prices of low income household in Australia. Word Count: 2500 - 3000 words

Determine the project cash flows in actual dollars : Determine the project cash flows in actual dollars. Determine the project cash flows in constant (time-zone) dollars.

What is your estimate of the stock current price : A company currently pays a dividend of $1.75 per share (D0 = $1.75). It is estimated that the company's dividend will grow at a rate of 19% per year.

Calculate the required pre retirement real annual savings : Calculate the required pre retirement real annual savings necessary to meet your consumption goals.

What items in the balance sheet or income statement : What item or items in the balance sheet or income statement of an manufacturing company would likely be affected.

Calculate the annual debt-service payments : A company financed with 100% equity has a cost of capital equal to approximately 10%. This firm has only one asset: a chemical plant capable of generating.

User Account

All Pages