Reference no: EM132746150

Vortex Technologies Inc. is considering the expansion project that involves the purchase of new equipment. The cost of equipment is $350,000, and an additional $110,000 is needed to install it. The equipment will be depreciated to zero over a 5-year period using straight-line depreciation approach, so the annual depreciation expense will be $92,000 (i.e. 460,000 / 5 = 92,000). The equipment will generate additional annual revenues of $265,000, and it will result in additional annual cash operating expenses of $83,000. The company expects to sell the equipment after 5 years for €85,000. The project will also require an initial investment of $73,000 in net working capital. The company managers assume that the net working capital investment will be recovered at the end of the project. Vortex Technologies Inc. has the 40% marginal tax rate. The required rate of return for the project is 10%.

Problem 1) Determine the project's initial cash outlay;

Problem 2) Determine the annual after-tax operating cash flows for years 1 - 5;

Problem 3) Determine the terminal year after-tax non-operating cash flow in year 5;

Problem 4) Calculate the project's NPV;

Problem 5) Using the NPV criterion, should the company managers accept or reject the project? Explain.