Personal Engineering has purchased a machine that will see output increase from 2 million units to 5 million units. The variable cost per unit will decrease from $5.00 to $3.00. The sales price per unit is $12. Fixed costs will increase from $1,400,000 per annum to $2,500,000 per annum. Head office costs of $250,000 will be allocated to the new machine but the overall head office costs have not changed with the addition of the new machine. The new machine will require a 3 year, 5% interest only loan of $1m. Depreciation on the machine will be $200,000 per annum. The old Machine that was replaced and still had a useful life of 3 years had annual depreciation of $45,000. The tax rate is 20%. Calculate the FCF in Year 2. Show all workings.
Personal Engineering has purchased a machine that will see output increase from 2 million units to 5 million units. The variable cost per unit will decrease from $5.00 to $3.00. The sales price per unit is $12. Fixed costs will increase from $1,400,000 per annum to $2,500,000 per annum. Head office costs of $250,000 will be allocated to the new machine but the overall head office costs have not changed with the addition of the new machine. The new machine will require a 3 year, 5% interest only loan of $1m.
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