Question: Your firm is considering a new product development. an outlay of $90,000 is required for equipment, and an additional net working capital of $5000 is required. the project is expected to have a 4 year life, and th equipement will be depreciated on a straight line basis to a $10,000 book value. producing the new product will reduce current manufacturing expenses by $15,000 annually and increase earnings (revenue) before depreciation and taxes by $18,000 annually. stanton's marginal tax rate is 40 percent. stanton expects the equipment will have a marekt salvage value of $10,000 at the end of 4 years.
1. What is the project's After-Tax operating cash flow during years 1-4 from the machine? (its an annuity)?
2. Compute the After Tax Salvage value of the equipment at the end of 4 years?
3. Compute the Total cash flows each period associated with the analysis of this project and clearly indicate them on a time line.
4. If the cost of capital for a project of this risk is 9%, what is the project's NPV? should it be accepted? accept or reject the project? Why?
5. What is the projects IRR? accept or reject the project? Why?
6. What is the projects PI? Accept or reject the project? Why?