Your company is considering a machine that will cost $ 5,515 at Time 0 and which

Question

Your company is considering a machine that will cost $ 5,515 at Time 0 and which can be sold after 3 years for $ 563 . To operate the machine, $ 445 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3. The machine will produce sales revenues of $ 1,226 /year for 3 years; variable operating costs (excluding depreciation) will be 46 percent of sales. Operating cash inflows will begin 1 year from today (at Time 1). The machine is in the 3-year MACRS class. The MACRS class has depreciation of 33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The company has a 41 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent cost of capital. Inflation is zero. What are the total cash flows in year 2?

Explanation / Answer

year investment sales costs depre intrest PBT Tax Cashflow

0 (5515+445) - - - - -   

1 - 1226 563.96 1819.95 551.5 -1709.41 refund -5849.6

2 " " " " 2481.75 " " -2371.21 "" 110.54

3 (563+445) " " " " 827.25 "" -716.71 "" 110.54

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

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