Axillar Beauty Products corporation is considering the Production of a new condi

Question

Axillar Beauty Products corporation is considering the Production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $375,000 is expected to have a useful life of 10 years, and is expected to have salvage Value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $ 40,000 increase in working will be needed for this investment project. The working capital will be released at the end of the 10 The new shampoo is expected to generate new cash inflows of $85,000 Per year for each of the 10 Axillar's discount rate is 16%

Explanation / Answer

cost of machine 375000 additional working capital 40000 overhauling at the end of year 6 35000/(1.1)^6 19756.59 cash outflow 434756.6 year net cash inflow dep cash flow before depreciation present value10% present value of cash flows 1 85000 32500 117500 0.90909091 106818.182 2 85000 32500 117500 0.82644628 97107.438 3 85000 32500 117500 0.7513148 88279.4891 4 85000 32500 117500 0.68301346 80254.081 5 85000 32500 117500 0.62092132 72958.2555 6 85000 32500 117500 0.56447393 66325.6868 7 85000 32500 117500 0.51315812 60296.0789 8 85000 32500 117500 0.46650738 54814.6172 9 85000 32500 117500 0.42409762 49831.4702 10 125000 32500 157500 0.38554329 60723.0681 sum of present value of cash flow 737408.366 cash outflow 434756.588 npv 302651.779

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