Initial Cash Outflow Assignment | Homework For You

The following data apply to the next three questions.

You have been asked to evaluate the proposed acquisition of a new machine to expand your company’s product line. The machine’s purchase price is $740,000. It would be depreciated straight-line, down to zero, over four years. Purchase of the machine would require an increase in net working capital of $100,000. The machine would generate $400,000 before-tax revenues per year but would have operating costs of $150,000 per year. The machine is expected to be used for 3 years and then be sold for $185,000. The firm’s marginal tax rate is 40%, and the project’s cost of capital is 12%.

13.    What is the initial (t=0) cash outflow?

a.     $680,000                                        b.      $840,000

c.     $815,000                                        d.      $720,000

14.    What is the total project cash flow at t=1?

a.        $150,000                                     b.      $222,000

c.        $224,000                                     d.      $237,000

15.    What is the total project cash flow at t=3?

a.        $484,000                                     b.      $317,000

c.        $497,000                                     d.      $509,000Get Finance homework help today