Problem:
Tito's printing purchases a ew machine for $250,000.This will produce increased earnings before tax of $50,000.Training for workers would be $6000 after taxes.Installation is $7,000. Inventory would increase by $10,000. The machine's expected life is 10 years with no salvage value.The firm borrowed $100,000 at 11 pecent per year resulting in additional interest of $11,000 per year.Assuming straight line depreciation and a marginal tax of 36 percent and a required rate of return of 15 percent.
Required:
- What is the initial outlay for the project?
- What are the after tax for years 1-through 9
- What is the terminal cash flow in year 10.
- Should the machine be purchased?
Note: Provide support for your rationale.