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(Answered)-Your company is considering a machine that will cost $ 3,493 at


Your company is considering a machine that will cost $ 3,493 at Time 0 and which can be sold after 3 years for $ 416 . To operate the machine, $ 597 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3. The machine will produce sales revenues of $ 1,013 /year for 3 years; variable operating costs (excluding depreciation) will be 60 percent of sales. Operating cash inflows will begin 1 year from today (at Time 1). The machine is in the 3-year MACRS class. The MACRS class has depreciation of 33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The company has a 33 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent cost of capital. Inflation is zero. What are the terminal cash flows associated with ending this project? Note, I want only the Year 3 terminal cash flows, not the year 3 operating cash flows.


Your company is considering a machine that will cost $ 3,493 at

 

Time 0 and which can be sold after 3 years for $ 416 . To operate

 

the machine, $ 597 must be invested at Time 0 in inventories;

 

these funds will be recovered when the machine is retired at the

 

end of Year 3. The machine will produce sales revenues of $

 

1,013 /year for 3 years; variable operating costs (excluding

 

depreciation) will be 60 percent of sales. Operating cash inflows

 

will begin 1 year from today (at Time 1). The machine is in the 3year MACRS class. The MACRS class has depreciation of 33% in

 

year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The

 

company has a 33 percent tax rate, enough taxable income from

 

other assets to enable it to get a tax refund from this project if

 

the project's income is negative, and a 10 percent cost of capital.

 

Inflation is zero. What are the terminal cash flows associated with

 

ending this project? Note, I want only the Year 3 terminal cash

 

flows, not the year 3 operating cash flows.

 


 

 


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Oct 07, 2020

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