Question

**NEW PROJECT ANALYSIS**

You must evaluate a proposal to buy a new milling machine. The base price is $138,000, and shipping and installation costs would add another $20,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $75,900. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $9,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $32,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

- How should the $5,000 spent last year be handled?
- Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
- Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
- Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
- The cost of research is an incremental cash flow and should be included in the analysis.
- Only the tax effect of the research expenses should be included in the analysis.

-Select-IIIIIIIVVItem 1 -
What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.

$ -
What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

Year 1 $

Year 2 $

Year 3 $

- Should the machine be purchased?

Answer #1

You must evaluate a proposal to buy a new milling machine. The
base price is $148,000, and shipping and installation costs would
add another $11,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $103,600. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $9,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...

You must evaluate a proposal to buy a new milling machine. The
base price is $143,000, and shipping and installation costs would
add another $7,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $50,050. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $9,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...

You must evaluate a proposal to buy a new milling machine. The
base price is $177,000, and shipping and installation costs would
add another $9,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $61,950. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $9,500 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...

You must evaluate a proposal to buy a new milling machine. The
purchase price of the milling machine, including shipping and
installation costs, is $152,000, and the equipment will be fully
depreciated at the time of purchase. The machine would be sold
after 3 years for $71,000. The machine would require a $3,500
increase in net operating working capital (increased inventory less
increased accounts payable). There would be no effect on revenues,
but pretax labor costs would decline by $55,000...

NEW PROJECT ANALYSIS You must evaluate a proposal to buy a new
milling machine. The base price is $188,000, and shipping and
installation costs would add another $11,000. The machine falls
into the MACRS 3-year class, and it would be sold after 3 years for
$65,800. The applicable depreciation rates are 33%, 45%, 15%, and
7%. The machine would require a $4,000 increase in net operating
working capital (increased inventory less increased accounts
payable). There would be no effect on...

NEW PROJECT ANALYSIS
You must evaluate a proposal to buy a new milling machine. The
base price is $176,000, and shipping and installation costs would
add another $8,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $123,200. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on...

You must evaluate a proposal to buy a new milling machine. The
base price is $184,000, and shipping and installation costs would
add another $10,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $82,800. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...

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base price is $102,000, and shipping and installation costs would
add another $18,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $66,300. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $4,500 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...

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base price is $184,000, and shipping and installation costs would
add another $10,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $82,800. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $6,000 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax...

Tannen Industries is considering an expansion. The necessary
equipment would be purchased for $19 million, and the expansion
would require an additional $3 million investment in net operating
working capital. The tax rate is 40%.
What is the initial investment outlay? Round your answer to the
nearest dollar. Write out your answer completely. For example, 13
million should be entered as 13,000,000.
$[ ]
The company spent and expensed $15,000 on research related to
the project last year. Would this...

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