QRW Corp, needs to replace an old machine with a new, more efficient model. The new machine being considered will result in an increase in camings before interest and taxes of $70,000 per year. The purchase price is $200,000, and it would cost an additional $10,000 to properly install the machine. In addition, to properly operate the machine, inventory must be increased by S10,000. This machine has an expected life of 10 years, with no salvage value. Assume that a straight-line depreciation method being used and that this machine is being depreciated down to zero, the marginal tax rate is 34%, and a required rate of return of 15%. (i) Solve for the value of the initial outlay associated with this project. (ii) Solve for the value of annual after-tax cash flows for this project from 1 through 9
QRW Corp, needs to replace an old machine with a new, more efficient model. The new machine being considered will result in an increase in camings before interest and taxes of $70,000 per year. The purchase price is $200,000, and it would cost an additional $10,000 to properly install the machine. In addition, to properly operate the machine, inventory must be increased by S10,000. This machine has an expected life of 10 years, with no salvage value. Assume that a straight-line depreciation method being used and that this machine is being depreciated down to zero, the marginal tax rate is 34%, and a required rate of return of 15%. (i) Solve for the value of the initial outlay associated with this project. (ii) Solve for the value of annual after-tax cash flows for this project from 1 through 9
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1dM
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QRW Corp, needs to replace an old machine with a new, more efficient model. The new machine being considered will result in an increase in camings before interest and taxes of $70,000 per year. The purchase price is $200,000, and it would cost an additional $10,000 to properly install the machine. In addition, to properly operate the machine, inventory must be increased by S10,000. This machine has an expected life of 10 years, with no salvage value. Assume that a straight-line depreciation method being used and that this machine is being depreciated down to zero, the marginal tax rate is 34%, and a required rate of return of 15%.
(i) Solve for the value of the initial outlay associated with this project.
(ii) Solve for the value of annual after-tax cash flows for this project from 1 through 9
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