Acme Toy Company is considering the purchase of a machine for their production line.
Information on the purchase is shown below. show working in xl
Purchase Information:
1. Cost of machine is $ 3000000
2. Expected increase in EBIT is $ 700000
3. Training costs for new machine $ 225000
4. Increase in inventory for new parts $ 375000
5. Salvage value of machine $ 300000
6. Expected life of machine - 10 years, use straight line depreciation.
7. Tax Rate - 35% 35%
8. Required Rate of Return 12%
a. Calculate the initial outlay associated with the project.
b. What is the annual after tax cash flows for years 1-9?
c. What is the terminal cash flow in year 10?
d. Should the machine be purchased? (Do an NPV)