Evaluating the proposed acquisition of new milling machine

Assignment Help Financial Management

Reference no: EM132041170

The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machines base price is $ 108,000, and it would cost another $ 12,500 to modify it for special use. The machine falls into the MACRS 3- year class, and it would be sold after 3 years for $ 65,000. The machine would require an increase in inventory of $ 5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $ 44,000 per year in before-tax operating costs, mainly labor. Campbells marginal tax rate is 35%. 10% = WACC. (Three-Year MACRS Schedule: 33% 45% 15% 7%).

a. What is the initial investments? (what is the Year 0 net cash flow?)

b. What are the net operating cash flows in Years 1, 2, and 3?

c. What is the terminal cash flow from disposal of all assets tied up in this project?

d. What is NPV if this machine is expected to save the after-tax cash flows of the company’s another product line by $10,000 per year?

Reference no: EM132041170

Questions Cloud

Discuss the characteristics of gifted children : Discuss the characteristics of gifted children and a variety of effective instructional methods.

What is nominal yield to maturity : A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 7 years at $1,062, and currently

Write a brief description of the intellectual disability : An important part of your job when working with children with intellectual disabilities is the ability to modify instruction in order.

What is its yield to maturity : A bond has a $1,000 par value, 12 years to maturity, and a 9% annual coupon and sells for $1,110.

Evaluating the proposed acquisition of new milling machine : The Campbell Company is evaluating the proposed acquisition of a new milling machine. What is the initial investments?

Operating cost are expected to be constant over project life : Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV?

What are the forward price and the value of the forward : Nine months later, the price of the stock is $45 and the risk-free interest rate is still 7%. What are the forward price and the value of the forward contract?

Describe situation when you compared three samples : Describe situation when you compared three samples. For example, you may have said that you are pretty sure that it rains the same amount.

Prepare a professional presentation for a diverse group : Prepare a professional presentation for a diverse group of professionals, such as school principals or district administrators, social service providers.

User Account

All Pages