Reference no: EM133146885
Question - You have been asked to evaluate the proposed purchase of a new machine by your company. The price of the new machine is £250,000, and it will cost an additional £25,000 to adapt it to the company's purpose. The company might try to sell the machine after five years, but it is very unlikely to get a meaningful (material) price. Depreciation is based on the straight-line method.
Use of the machine would require an increase in net working capital of £15,000, which would be recovered in the final year of the investment.
The machine is expected to save the firm £50,000 per year in operating costs. The corporate tax rate is 40%.
Required -
a. What is the initial investment outlay associated with the machine purchase?
b. What is the terminal cash flow in year five?
c. Critically examine the treatment of working capital in the above case.
d. If the project's required rate of return is 15%, should the equipment be purchased?
e. Undertake a detailed critical evaluation of how your company could increase the NPV of the project by using debt finance.
|
What the cost of goods sold for this company
: A manufacturing company has a beginning finished goods inventory of $14,800, raw material purchases of $18,200, What the cost of goods sold for this company
|
|
Various employment websites
: Imagine you have completed your bachelor's degree and are searching for a job in finance, accounting, or business. Using various employment websites
|
|
What is her margin percentage
: Zoey would like to buy 50 shares of Beauty Inc. stock at $30 each. She only has $800 to invest herself. What is her margin percentage
|
|
Nostalgia and storytelling in advertising
: Analyze one tv commercial (long form or short form) for this discussion submission. How does this commercial compare to its competition?
|
|
What is the terminal cash flow in year five
: The machine is expected to save the firm £50,000 per year in operating costs. The corporate tax rate is 40%. What is the terminal cash flow in year five
|
|
What was the balance of x limited retained profits
: During 2029, X Limited earned revenue of $1,000 and a net profit of $200. What was the balance of X Limited's retained profits at 1 January 2029
|
|
Develop a balance sheet
: Marion has a muffin shop located in a rented 1200 square foot building in a small town of approximately 10,000 people. Develop a balance sheet
|
|
Journalize the transactions for the month
: Jan 11 Received a long-term loan from VTBC Bank for $ 45,000 by cheque and bought stationery for cash $12,000. Journalize the transactions for the month
|
|
Compute the irr under this new assumption
: Assume that instead of $15,800, the salvage value in 15 years for the new equipment will be $0. Compute the IRR under this new assumption
|