Find terminal cash flow in year 10that is annual after tax

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Reference no: EM13476485

Company is considering the purchase of a new production machine which costs $400,000. The purchase will result in an increase in earnings before interest and taxes of $140,000 per year. Training for workers will cost $26,000 after tax. In addition, it will cost $3,000 after tax to install new machine. Purchase of machine will require an increase in inventory of $24,000. The machine has an expected life of 10 years. Assume simplified straight line depreciation with machine being depreciated down to 0, a 30% marginal tax rate and a required rate of return of 13%.

a) What is initial outlay for this project

b) What are the annual after tax cash flows associated with this project for years 1 through 9

c) What is terminal cash flow in year 10(that is, the annual after tax cash flow in year 10 plus any additional cash flows associated with termination of this project.

d) Should machine be purchased.

Reference no: EM13476485

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