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Question: The Motch Machinery Company is planning to expand its current spindle product line. The required machinery would cost $500,000. The building to house the new production facility would cost $1.5 million. The land would cost $250,000, and $150,000 working capital would be required. The product is expected to result in additional sales of $675,000 per year for 10 years, at which time the land can be sold for $500,000, the building for $700,000, and the equipment for $50,000. All of the working capital will be recovered. The annual disbursements for labor, materials, and all other expenses are estimated to be $425,000. The firm's income tax rate is 40%, and any capital gains will be taxed at 30%. The building will be depreciated with d = 4%. The manufacturing facility will be classified as class 43 property with d = 30%. The firm's MARR is also known to be 15% after taxes.
(a) Determine the projected net after-tax cash flows from this investment. Is the expansion justified?
(b) Compare the IRR of this project with the situation with no working capital.
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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