Firm S is considering adding a robotic device to its production line. The device

Question

Firm S is considering adding a robotic device to its production line. The device base price is $1,038,000.00, and it would cost another $21,500.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $563,000.00. The machine would require an increase in net working capital (inventory) of $7,500.00. The sprayer would not change revenues, but it is expected to save the firm $446,450.00 per year in before-tax operating costs, mainly labor. Firm S marginal tax rate is 30.00%.

A). If the project's cost of capital is 12.65%, what is the NPV of the project?

B). What is the Year 0 net cash flow?

C). What are the net operating cash flows in Years 1, 2, and 3?

D). What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital

Explanation / Answer

Particular/Year 0 1 2 3 4 Initial Investment (A) 1038000 Installation Charges(A1) 21500 Salvage Value(B) 563000 Depriciatopn % 33.33 44.45 14.81 7.41 Depriciatopn Amount=% X (A-B)

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

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