Reference no: EM132903736

Problem - B Corp is considering the acquisition of a new machine. The new machine can be purchase for $100,000; it will cost $ 4,000 to install and $ 7,000 to transport to B Corp plant. It is estimated the machine will last 10 years and it is expected to be worth $ 4,000 after it is fully depreciated. Over its 10-year life the machine is expected to produce 3,000 units per year with a selling price of $ 300 and combined material and labour cost of $ 250 per unit. Federal tax regulations permit machines of this type to be depreciated using straight line method over 7 years with no consideration of salvage value B Corp has a marginal tax rate of 30 % Pb 191

A) What is the net cash outflow at the beginning of the first year that B Corp should use in a capital budgeting analysis?

Purchase price $100,000

Transportation cost 7,000

Installation cost 4,000

B) How much deprecation should B Corp include in the calculation of after-tax cash flow in its capital budgeting analysis for Year 2.

C) What is the net cash flow for the second year that B Corp should use in a capital budgeting decision?