Evaluating the proposed acquisition of a new machine

Assignment Help Finance Basics
Reference no: EM133119878

Windsor Co. is evaluating the proposed acquisition of a new machine, which can be used for 5 years. This machine is in asset class 9, which has a CCA rate of 30%. The machine's base price is $650,000. For simplicity, we assume that no additional working capital is required during the machine's economic life. The firm's production department anticipates the machine will generate an additional $450,000 per year in annual operating revenue, while the associated annual operating expenses are projected to be $325,000 per year. Management estimates that at the end of 5 years, the machine can be sold for $120,000. Assume the asset class remains open after the machine is sold, and the firm's cost of capital is 12%. The firm's tax rate is 45%.

  • Calculate the operating cash flows each year from year 1 to year 5.
  • Calculate the total free cash flows at each date associated with this investment.
  • Calculate the NPV of this investment.
  • If the asset class is closed after the machine is sold at the end of 5 years, how will your answer in part 2) change? Why?

Reference no: EM133119878

Questions Cloud

What is contract worth in today : Q1) Suppose you signed a contract for a special assignment over the next 14 years. You will be paid $17,255 at the end of each year. If your required rate of re
Design and simulate a 3-input nand gate : Design and simulate a 3-input NAND gate in CMOS logic and perform raise/fall delays analysis using Multisim.
Recommend for the various funds : Regarding the 5 choices made above, explain which sales charge option you would recommend for the various funds and why you are making this recommendation?
Firm value and shareholder wealth maximization : As a CFO for Air Canada /Shopify or ABC company (Your group assignment company), please write a memo (300 words each)to the investors/shareholders meeting respe
Evaluating the proposed acquisition of a new machine : Windsor Co. is evaluating the proposed acquisition of a new machine, which can be used for 5 years. This machine is in asset class 9, which has a CCA rate of 30
The cost of economic growth : Are wealthy nations that use the labor of developing nations responsible to the people and environment of that country? Why or why not? Explain.
Company weighted average cost of capital : The bonds are selling at 102% of face value. The company's tax rate is 25%. What is the company's weighted average cost of capital (WACC)?
The opportunity and marketing research : Describe the opportunity that this plan will address. Industry analysis-what is happening in the overall industry for this product/service
Calculate the project npv : Sabre, Inc. is evaluating a new project to produce 3-D printers. The project will require an immediate investment in fixed assets of $19 million. Economists exp

Reviews

Write a Review

Finance Basics Questions & Answers

  Why is it that the debt burden in africa

Why is it that the debt burden in Africa is likely to amount to a crisis

  Fair value adjustment for securities-morrill afs portfolio

Prepare the January 1, 2014, and December 31, 2014, journal entries, assuming Morrill uses U.S. GAAP to account for the bond investment.

  Describing the present value

A firm with a cost of capital of 13.5% has a contract to sell an asset for $230,000 in five years. The asset costs $111,000 to produce today (at t = 0). Find out the maximum annual carrying cost that the firm can bear and still make this an advisab..

  What is the value of firm operations today

Find the horizon value in year 5 for the firm's constant growth phase. What is the value of firm operations today?

  Reasons supporting the opposite conclusion

The city of Pawnee's municipal council consists of several departments, one of which is the Parks and Recreation department. Their role is to design and build p

  A project has an initial cost of 40000 expected net cash

a project has an initial cost of 40000 expected net cash inflows of 9000 per year for 7 years and a cost of capital of

  How to compute risk budget

How to compute risk budget? The lower of volatility tolerance and return needs

  Why did ikea expand globally

Why did Ikea expand globally? state four reasons with explanation

  Calculate liquidation value of boti ltd

Due current economic uncertainty, the owners of BoTi ltd have decided to sell their business and to value it using the liquidation approach.

  Distributions of monthly intc returns and msft returns

MAF759 - QUANTITATIVE METHODS FOR FINANCE - Calculate monthly discrete returns (hint: holding period returns) for the NASDAQ index, Intel Corporation (INTC) and Microsoft Corporation (MSFT) stocks prices, respectively.

  What make crossborder financial statement analysis difficult

What makes cross-border financial statement analysis difficult? What alternatives does an MNC have when investors in a foreign country demand accounting and financial information?

  Compute the market value

Compute the market value and What is the maximum amount that can be loaned on a property whose net operating income

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd