A company making plastic car parts buys new molding machines to expand its production capacity. The machines cost $3000000, with additional charges for delivery and installation totaling $34162. Employees will have to be trained to use the new machines, at the cost of $26256. With the increased production, accounts payable will go up by $46911, inventory by $50210, and accounts receivable by $68616 at the outset. These changes in the working capital will be recaptured at the end of the project’s life of 5 years. The depreciable life of the machines is 10 years, and the company uses straight-line depreciation. The increased production will increase the sales revenue by $2000000 and the costs ,including depreciation, by $681643 per year in each of the next 5 years. The company expects to sell the machines after five years for $474748. The company’s tax rate is 20% and its cost of capital is 12%. Compute operating cashflow for year 1! (Subtract accounts payable)
A company making plastic car parts buys new molding machines to expand its production capacity. The machines cost $3000000, with additional charges for delivery and installation totaling $34162. Employees will have to be trained to use the new machines, at the cost of $26256. With the increased production, accounts payable will go up by $46911, inventory by $50210, and accounts receivable by $68616 at the outset. These changes in the working capital will be recaptured at the end of the project’s life of 5 years. The
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
