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Total initial invetment for capital budgeting purpose

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Reference no: EM132421971

Problem: Cameron Company is evaluating the propsed acquisition of a new milling machine. The machine's base price is $135000, and it would cost another $10000 to modify it for special use. After 4 years, the machine would be sold for $60000. The machine would require an investment in net working capital (inventory) of $8000. The milling machine would have no effect on revenue, but it is expected to save the firm $3300 per year in beofre tax operation costs, mainly labour. Cambell's marginal tax rate is 30%.

Required:

Question 1: What is the total initial invetment for capital budgeting purpose?

Question 2: What is the PV of the project cash flows using a 10.5% cost of capital?

Question 3: What is the PV of the additional Year 4 cash flow?

Question 4: If the project's cost of capital is 10.25%, should the machine be purchased?

Reference no: EM132421971

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