Hardware Industries is purchasing a new chemical vapor depositor to manufacture silicon chips. The total cost for the machine is $4,900,000, with an additional $100,000 required for delivery and installation. This machine is expected to operate for five years and increase gross profits by $4,730,000 annually, starting at the end of the first year. Additional general expenses related to the machine are estimated at $950,000 per year. Depreciation of the machine will occur over a five-year period using the straight-line method. With a marginal tax rate of 40%, it is necessary to calculate the incremental free cash flows associated with the new machine in year 0 of the project. The machine is assumed to be purchased in year 0, with depreciation starting in year 1.

The additional operating cash flow that a company obtains as a result of embarking on a particular…

Hardware Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $4,900,000 to buy the machine and $100,000 to have it delivered and installed. The machine is expected to work for five years and raise gross profits by $4,730,000 per year, starting at the end of the first year. Other general expenses associated with using the machine are estimated at $950 thousand for each of those years. The machine will be depreciated over five years using the straight-line method. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 0 of the project? Assume the machine is purchased in year 0 and starts depreciating in year 1 of the project.

Hardware Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $4,900,000 to buy the machine and $100,000 to have it delivered and installed. The machine is expected to work for five years and raise gross profits by $4,730,000 per year, starting at the end of the first year. Other general expenses associated with using the machine are estimated at $950 thousand for each of those years. The machine will be depreciated over five years using the straight-line method. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 0 of the project? Assume the machine is purchased in year 0 and starts depreciating in year 1 of the project.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year’s rental charge on the warehouse is $105,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.23 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $410,000. Finally, the project requires an immediate investment in working capital of $355,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $4.30 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
I want to answer this question
A company is considering the purchase of a new machine for $67,000. Management predicts that the machine can produce sales of $20,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,200 per year including depreciation of $5,900 per year. The company's tax rate is 40%. What is the payback period for the new machine? 3.35 years. 6.77 years. 5.16 years. 11.36 years. 26.59 years.
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $99 million upfront. Once built, it will generate cash flows of $14 million per year starting two years from today. In 21 years, after its 20th year of operation, the mine will run out of ore and you expect to pay $181 million to shut the plant down and restore the area to its pristine state. Using a cost of capital of 13%: a. What is the NPV of the project? b. Is using the IRR rule reliable for this project? Explain. c. What are the IRRS of this project? ... a. What is the NPV of the project? The NPV of the project is $ million. (Round to one decimal place.)
shobha
A toy manufacturer is considering the installation of a new process machine for the toy manufacturing facility. The machine costs $350,000 installed. wi ll generate additional revenues of $120,000 per year and will save $50,000 per year in labor and material costs. The machine will be financed by a $250,000 bank loan repayable in three equal annual principal installments plus 9% interest on the outstanding balance. The machine will be depreciated by seven-year MACRS. The useful life of this processing machine is 10 years at which time it will be soldfor $20,000. The combined marginal tax rate is 40%.(a) Find the year-by-year after-tax cash flow for the project.(b) Compute the IRR for this investment.(c) At MARR= 18%, is this project economically justifiable?
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $195,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.77 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $590,000. Finally, the project requires an immediate investment in working capital of $445,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $6.10 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software and installation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10% per year MARR. What is the annual worth of each investment?Vendor A: $enter a dollar amount rounded to the nearest dollar Vendor B: $enter a dollar amount rounded to the nearest dollar
Agate Marketing Inc. intends to distribute a new product. It is expected to produce net returns of $13,000 per year for the first four years and $11,000 per year for the following three years. The facilities required to distribute the product will cost $36,000, with a disposal value of $9,600 after seven years. The facilities will require a major facelift costing $10,000 each after three years and after five years. If Agate requires a return on investment of 15%, should the company distribute the new product? If NPV is negative your answer must include the negative sign. Net Present Value (NPV) = Should the decision be Accept or Reject? Fir
Raghubhai
As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The equipment would cost $55,000, plus $10,000 for installation. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project's life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Depreciation would be based on the MACRS 3-year class; so the applicable rates would be 33%, 45%, 15%, and 7%. Variable costs would be 70% of sales revenues, fixed costs excluding depreciation would be $30,000 per year, the marginal tax rate is 40%, and the corporate WACC is 11%. What is the required investment, that is, the Year 0 project cash flow? What are the project's annual net cash flows? What is the terminal year project cash flow? You did a scenario analysis to better understand the project’s NPV: Probability Unit Sales VC% NPV Best case 25% 4,800 60% 39,434…
Martin Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $1,850,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $140,000. Your fixed production costs will be $625,000 per year, and your variable production costs should be $8.87 per carton. You also need an initial investment in net working capital of $295,000. If your tax rate is 21 percent and you require a 10 percent return on your investment, what bid price per carton should you submit?