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

Rob leslie induced people to invest their savings in a

Rob Leslie induced people to invest their savings in a business venture that he represented to be risky. Because the planned venture never became operational, Leslie never applied the investors' funds in the way he promi ...

Module cost of capital worksheetpromptreview the questions

Module Cost of Capital Worksheet Prompt Review the questions below and use the data provided in the question to solve the calculation. As you work through each equation, think about where the data for your company maybe ...

1-balance sheet computationsbalance sheet presented below

1-Balance sheet computations. (Balance Sheet) Presented below is the trial balance of Hightower Corporation at December 31, 2017.   Debit Credit Cash 295,000   Sales Revenue   $12,150 Debt Investments (trading) (at cost, ...

Assignment excel spreadsheet projecton december 31 2016

Assignment: Excel Spreadsheet Project On December 31, 2016, Carson Company rendered services to Lincoln Corporation at an agreed price of $125,939, accepting $50,000 down and agreeing to accept the balance in three equal ...

Nmims global accessschool for continuing education

NMIMS Global Access School for Continuing Education (NGA-SCE)  Course: Financial Accounting and Analysis  _____________________________________________________________________________ Question1. Following information is ...

Comprehensive problemthis project is a review of the

Comprehensive Problem This project is a review of the accounting cycle that has been covered during class. Prepare all information in a professional manner and show details as needed. You should complete this on the page ...

Mastering inventory1 baco opens its business in 20x2 and

MASTERING INVENTORY 1. BaCo opens its business in 20X2 and purchases merchandise on account for $88,000. In 20X2, BaCo pays $67,000 cash on the $88,000 due, sales are $145,000, and ending inventory is $24,000. BaCo's gro ...

Forecasting and preparing financial statementstina one of

Forecasting and Preparing Financial Statements Tina, one of your friends, approached you and proposed a partnership in a new venture that she is planning to start-a fashion boutique that will sell women's clothing and ac ...

Dickens corps fiscal year ends on december 31 it started

Dickens Corp.'s fiscal year ends on December 31. It started fiscal year 20X6 with $4,800 retained earnings. Below is its financial information as of December 31, 20X6. Cash $3,810 Depreciation expense  $1,005 Accumulated ...

Exercise 1 fixed versus variable cost behaviornasenko

Exercise 1: Fixed versus variable cost behavior Nasenko Company's cost and production data for two recent months included the following:                            March    April Production (units)   200       400 Rent   ...

  • 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