(Calculating project cash flows and? NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of ?$90000 per year. The machine has a purchase price of ?$400000 and it would cost an additional ?$7000 after tax to install this machine correctly. In? addition, to operate this machine? properly, inventory must be increased by ?$20000.This machine has an expected life of 10 ?years, after which time it will have no salvage value. ? Also, assume simplified? straight-line depreciation, that this machine is being depreciated down to? zero, a 38 percent marginal tax? rate, and a required rate of return of 11 percent.
a. What is the initial outlay associated with this? project?
b. What are the annual? after-tax cash flows associated with this project for years 1 through 9??
c. What is the terminal cash flow in year 10 ?(that is, the annual? after-tax cash flow in year 10 plus any additional cash flow associated with termination of the? project)?
d. Should this machine be? purchased?