Hello - I need help with the following problem. A computerized machining center

Question

Hello - I need help with the following problem.

A computerized machining center has been proposed for a small tool manufacturing company. If the new system, which costs $125,000, is installed, it will generate annual revenues of $100,000 and will require $20,000 in annual labor, $12,000 in annual material expenses, and another $8,000 in annual overhead (power and utility) expenses. The automation facility would be classified as a seven-year MACRS property. The company is expected to phase out the facility at the end of five years, at which time it will be sold for $50,000.

Find the year-by-year after-tax net cash flow for the project at a 40% tax rate based on the net income and determine the after tax net present value of the project at the company

Explanation / Answer

e can approach the problem in two steps by using the format shown in Fig.6.3 to generate an income statement and then a cash flow statement. We will follow this form in our listing givens and unknowns below. In year 0 (that is, at present) we have an investment cost of $125,000 for the equipment. This cost will be depreciated in years 1 to 5. The revenues and costs are uniform annual flows in years 1 to 5. We can see below that once we find depreciation allowances for each year, we can easily compute the results for years 1 to 4, which have fixed revenue and expense entries along with the variable depreciation charges. In year 5, we will need to incorporate the salvage value and any gains tax from the asset

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.