Income statement and cash flow statements for project

Assignment Help Financial Management

Reference no: EM132055423

Your company is considering investing in a process control system to regular and monitor an important automated production process. The control system, which is classified as a 3-year MACRS asset, will cost $85,000 to purchase, and will require an additional investment in programming ($10,050) to customize the software tothe company’s needs, and $1200 in labor to install and validate the system before releasing it for production. Onceinstalled, the system is expected to save your company $24,500 per year, for at least the next seven years, in reduced process scrap and downtime. Annually, it will cost $2,600 to operate and maintain the control system. At the end of the fifth year, you anticipate a major overhaul of the production line, making the control system obsolete. However, you anticipate selling the control system (at the end of year 5) to a smaller facility for 10% of the initial cost basis.

(a) Find the net cash flows for each year of this project by constructing the income statement and cash flow statements for the project. Your company’s marginal tax rate is 27%. Note: You must show all unique calculations. For repetitive calculations – i.e. things you will calculate for each year of the project in the exact same way – you only need to show one representative calculation.

(b) Use the net present worth approach to determine if your company should (or should not) invest in this control system. Assume that your company’s MARR is 12%.

Reference no: EM132055423

Questions Cloud

What caused the dramatic changes to the american family : Describe the differences in marriage and family life that are linked to class, race, gender, and personal choice.

What was the approximate amount stolen during the past year : What was the approximate amount stolen during the past year? TIP: Assume employees work 5 days a week, 52 weeks a year

The least expensive capital component of the wacc : For the average firm, _________ is the least expensive capital component of the WACC. The reason this componennt is the least expensive is because it ________.

Justify the use of non-evidence-based treatment options : Prior to beginning work on this journal, please read Chapter 13 in History and Philosophy of Psychology. This journal invites you to engage in creative.

Income statement and cash flow statements for project : Find the net cash flows for each year of this project by constructing the income statement and cash flow statements for the project

How the goods are distributed : If the government controls the means of production, what is produced, and how the goods are distributed, what are the advantages and the disadvantages?

Transmission-based precautions : Hospitals and other health care settings will often implement Transmission-Based Precautions to prevent or help reduce the spread of infections to health

Provide correct analysis for capital budgeting purposes : Which one of the following methods will provide a correct analysis for capital budgeting purposes?

How self-perception can help you improve your communication : Discuss three (3) ways improving self-perception can help you improve your communication in professional, academic, personal, and civic aspects of your life.

User Account

All Pages