What is the initial outlay associated with the equipment

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Problem 1: What is the initial outlay (year 0) associated with the equipment?

Problem 2: What are the annual after-tax cash flows associated with the equipment for years one through six?

Company XYZ is considering the purchase of new processing equipment for $900,000 with an additional installation cost of $12,000. The new equipment will result in earnings before interest and taxes of $425000per year, and to operate the equipment properly, workers would have to go through an initial training session costing the company $32,000. In addition, because the equipment is extremely efficient, its purchase necessitates an increase in inventory of $55,000. Assume the company uses straight-line depreciation, the equipment has an expected life of seven years, the equipment will have no salvage value, the marginal tax rate is 18 percent, and the company has a required rate of return of 11 percent.

Reference no: EM132641375

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