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Annual Depreciation Expense Assignment | Homework For You

Consider the case of Fresno Furniture Manufacturing Inc.:
Fresno Furniture Manufacturing Inc. currently earns annual revenues of $700,000 and incurs total operating expenses (excluding depreciation and interest expense) of 45.00% of revenues. Its earnings are taxed at a rate of 40%.Homework For You
Today, its budgeting committee is evaluating the purchase of a new lathe. The lathe is expected to cost $75,000, plus $4,000 in freight and setup expenses, and will be depreciated using straight-line depreciation. It is expected that the lathe will have a useful life of five years and a salvage value equal to 25.00% of its purchase price of $75,000. It is expected that the lathe will be sold for its book value, such that no capital gain or loss will be realized.
It is further expected that the lathe will cause a 20.00% increase in the firm’s annual sales and total operating expenses (excluding depreciation and interest expense). If the lathe is purchased, the firm will require an additional $10,000 in net working capital (NWC).
Given this information, complete the following analysis:
Question
What is the annual depreciation expense for the lathe? What is the net investment (NINV) of the investment?
What are the net annual operating after-tax cash flows associated with this project?
What is the project’s last year (terminal) cash flow?.Get Finance homework help today

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