Should the company buy and install the vending machine

Assignment Help Financial Management

Reference no: EM13970896

You have been asked by the president of your company to evaluate the proposed acquisition of a new vending machine. The machine’s basic price is $100,000 and it will cost another $20,000 to modify it for special use by your firm. It will be sold after 3 years for $50,000. Use of the machine will require an increase in net working capital inventories of $5,000. The machine will have no effect on revenues, but is expected to save the firm $40,000 per year in before tax operating costs, mainly in labor. The firm’s marginal tax rate is 46% and the project’s cost of capital is 10%. a) What is the operating cash flow in Year 3? b) Should the company buy and install the vending machine?

Reference no: EM13970896

Questions Cloud

Drawbacks of accumulating cash balances : What are the benefits and drawbacks of accumulating cash balances rather than paying dividends and what effects do dividend policy have on this type of decision?

The cash flows are expected to last forever : You are considering opening a new plant. The plant will cost $35 million upfront and will take two years to build. After that, it is expected to produce net cash flows of $5 million at the end of every year of production. The cash flows are expected ..

What is the net present value of this project : You are analyzing a project with a 30-year lifetime, with the following characteristics: The project will require an initial investment of $20 million and additional investment of $5 million in year 10 and $5 million in year 20. What is the net prese..

What level of pretax operating profit : Sara Inc is considering a five-year project to improve its production efficiency. The new machine has an initial investment of $480,000. The salvage value at the end of the project will be $80,961. The machine also requires an initial investment in s..

Should the company buy and install the vending machine : You have been asked by the president of your company to evaluate the proposed acquisition of a new vending machine. The machine’s basic price is $100,000 and it will cost another $20,000 to modify it for special use by your firm. What is the operatin..

Financial distress different from agency benefit of leverage : What are agency costs, and how are agency costs of financial distress different from agency benefits of leverage? Explain their impact on calculating the value of a firm with financial distress.

Find all the equilibrium points of these equations : Find all the equilibrium points of these equations - classify each equilibrium point of this non-linear system as far as Possible by considering the Jacobian matrix.

Gross pay for that week : Determine his gross pay for that week if the company uses the one-half average rate method.

Dividend payment process and open-market repurchase process : What are the dividend payment process and the open-market repurchase process? In your answer, be sure to explain the effects they have in a perfect world.

User Account

All Pages