XYZ Company has sales of $4,800,000, COGS is 40% of sales, operating expenses are $2,100,000, interest expense $20,000 and depreciation 30,000. Tax rate 40%. XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $40,000. MACRS 3 year depreciation. With the more efficient machine, labor savings per year are expected to be $70,000, $94,000 and $76,000 respectively. 40% tax. The cost of capital for this project is 8.2%
1. XYZ has current assets of $680,000 fixed assets of $5,400,000, and$240,000 in AP and accruals. They are presently at 90% of capacity. What can sales reach before they need to add fixed assets?
5,333,333
5,280,000
4,320,000
6,800,000
2. True or False: They have a need for external funds (AFN)?
Please show work.