Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

Problem: You must compute a proposal to purchase a new milling machine. The base price is $165,000, and installation and shipping costs would add another $19,000. The machine falls in the MACRS 3 year class, and it would be sold after three years for $57,750. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would need a $9,500 raise in net operating working capital (raised inventory less increased accounts payable). There would be no consequence on revenues however pre-tax labour costs would decline by $45,000 per year. The marginal tax rate is 35%, and the WACC is 11%. Also, the firm spent $5,000 previous year investigating the feasibility of using the machine.

problem1. How must the $5,000 spent last year be handled?

i) Last year's expenses is considered a sunk cost and does not represent the incremental cash flow. Hence, it must not be included in analysis.

ii) The cost of research is incremental cash flow and must be included in analysis.

iii) Only the tax cause of the research expenses should be included in the analysis.

iv) Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it must not be included in initial investment outlay.

v) Last year's expenses is considered an opportunity cost and doesn’t represent an incremental cash flow. Thus, it must not be included in analysis.

problem2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is Year 0 project cash flow?

problem3. What are the project's annual cash flows throughout Years 1, 2, and 3?

Year 1 $
Year 2 $
Year 3 $

problem4. Should the machine be bought?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94042

Have any Question? 


Related Questions in Financial Accounting

Assignmentyou have just been hired as a new management

Assignment You have just been hired as a new management trainee by XYZ Co, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little i ...

Assignmentswish watch corporation manufactures sells and

Assignment Swish Watch Corporation manufactures, sells, and services expensive, ugly watches. The company has been in business for three years. At the end of the most recent year, 2006, the accounting records reported to ...

Accounting assignmentproject datanoble company is a small

Accounting Assignment Project Data Noble Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to ...

Assignmentuse the following information for questions 1

Assignment Use the following information for Questions 1 through 5: Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS: Year P ...

Assignment government-wide statements net assets amp

Assignment: Government-Wide Statements, Net Assets, & Journals Complete the following activities and submit your answers to your instructor in a Word document formatted to proper APA specifications. Include any relevant ...

Read harvard business reviews in search of a second act

Read Harvard Business Review's "In Search of a Second Act" case study. You can search for it in Business Source Complete (EBSCO) or use the see "How to find an article" in the Course Information tab. Two authors gave the ...

Assessmentbullfor this assessment complete the problem

Assessment • For this assessment, complete the problem below. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials ...

Excel project instructionsassume abc company has asked you

EXCEL PROJECT INSTRUCTIONS Assume ABC Company has asked you to not only prepare their 2015 year-end Balance Sheet but to also provide pro-forma financial statements for 2016. In addition, they have asked you to evaluate ...

What are some different ways you could communicate a

What are some different ways you could communicate a concept for a new user interface for an automotive audio system? What are the strengths and weaknesses of each approach?

Consider four different stocks all of which have a required

Consider four different stocks, all of which have a required return of 18.5 percent and a most recent dividend of $3.65 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the fo ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro