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The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use by your firm. The machine falls into the MACRS 3 year class, and it would be sold after 3 years for $65,000. The machine would require an increase in net working capitol (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operating costs mainly labor. Campbell's marginal tax rate is 35 percent.
a) What is the net cost of the machine for capitol budgeting purposes? (That is what is the year 0 net cash flow?)b) What are the net operating cash flows in years 1, 2, and 3?c) What is the terminal year cash flow?
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Some companies' debt-equity targets are expressed not as a debt ratio, but as a target debt rating on a firm's outstanding bonds. What are the pros and cons of setting a target rating, rather than a target ratio? Please explain both and provide ad..
The firm has a tax rate of 40%. If the machine is sold at the end of two years for $50,000, what is the cash flow from disposal?
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The present value of the following cash flow stream is $7,300 when discounted at 8 % annually. What is the value of the missing cash flow? Year 1 cash flow $1500 Year 2 cash flow ? Year 3 cash flow $2700 Year 4 Cash flow $2900
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