What are the projects annual cash flows during years

Assignment Help Financial Management

Reference no: EM131182538

You are evaluating a proposal to buy a new machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine is depreciated using prime cost method (3 years useful life), and it would be sold after 3 years for $60,000. The machine would require a $5,500 increase in net operating working capital (in year 0) and this will be returned at the end of year 3. The pre-tax labour costs would decline by $44,000 per year. The marginal tax rate is 35% and the WACC is 12%.

1) What are the project’s annual cash flows during years 0, 1, 2 and 3?

2) Calculate NPV and advise whether this project should be accepted based on its NPV.

Reference no: EM131182538

Questions Cloud

Shareholder value and the cost of capital : AJI Limited current share price is $20 and it has just paid a $1 dividend. As AJI is a mature firm, this $1 dividend is expected to grow at a rate of 4% per year. What is an estimate of the return shareholders of AJI Ltd expected to earn? AJI has iss..

What is your holding-period return : You buy a ten-year bond that has a 7.75% current yield and a 7.75% coupon (paid annually). In one year, promised yields to maturity have risen to 8.75%. What is your holding-period return?

Find CSNs stock price using the FCFE method : CSN reported net income of $100 million last year. CSN expects net income to grow at 7% next year, at 5% in the following year, and then at a constant rate of 3.5% per year forever. CSN expects that its current ROE will remain constant forever. Find ..

The required return on shares in firms identified in parts : The required return on the shares in the firms identified in parts (i) and (ii) is 15% per annum (discount rate). Calculate the current share price in each part. The current dividend per share in Firm B is 80 cnets. This dividend is expected to grow ..

What are the projects annual cash flows during years : You are evaluating a proposal to buy a new machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine is depreciated using prime cost method (3 years useful life), and it would be sold after 3 year..

Dictate the use of process costing system : Provide an example of how a company may change its processes to make its manufacturing more efficient or environmentally sustainable. How will the company benefit? Justify why you think this production process would dictate the use of a process costi..

Methods does not consider the investments profitability : Which of the following methods does not consider the investment’s profitability? Cash + short-term investments + net current receivables) divided by current liabilities is the formula for

Depreciation is straight-line to zero over life of project : We are evaluating a project that costs $1,220,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 88,900 units per year. Calculate the best-case a..

Statements about preferred stock : Which of the following statements about preferred stock is FALSE?

User Account

All Pages