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What are the annual after-tax cash flows associated

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Company X is considering the purchase of a new production machine $700,000 and the installation cost would be $100,000. For the following five years, sales will be $600,000 per year and annual operating costs (exclusive of depreciation) will be $340,000. The purchase of this machine would necessitate an increase in inventory of $50,000. This machine has an expected life of five years, after which it will have no salvage value. ssume that straight-line depreciation is used.

The firms cost of capital is 10% and the firms tax rate is 20%.

Question 1) What is the initial outlay associated with this project?

Question 2) What are the annual after-tax cash flows associated with this project for years 1-5?

Question 3) Should this machine be purchased?

Reference no: EM132538226

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