Question

Intro Lattice Semiconductor is thinking of buying a new machine for $190,000 that would save it $30,000 per year in production costs. The savings would be constant over the project's 3-year life. The machine falls into the 3-year MACRS class (see table for depreciation amounts) and can be sold for $80,000 after three years. The machine would require an additional $8,000 in net working capital. The company has a tax rate of 35% and uses its weighted average cost of capital of 13% for this project. Year 1 Year 2 Year 3 30,000 30,000 30,000 62,700 85,500 28,500 -32,700 -55,500 1,500 Cost savings Depreciation EBIT Taxes (35%) Net income Depreciation OCF NCS ANWC CFA

What is the cash flow from assets in year 1?

What is the after-tax salvage value at the end of year 3?

What is the cash flow from assets in year 3?

Hint: add the after-tax salvage value and the recovery of net working capital.

Answer 1

$ 30,000 30000 62,70095,00 30000 32.39 tuliculars Cost savings. Deprecalon GRIL Tones (251) Net Income Depreciation OCF NCS AWC CFA -55.50 25.50.. 30000 92.500 29,475 - 32,702 62,700 30.000 - 190000 - 2000 -- 1,69.000 +9000 - 30.000 Beypto 94.136 Cash Blue from Assets in years I - -5143.100 (a) Calculation of after-tut Salage valus at line end of Year 3 Cost of Machine $1,90,000 use. Year deprecation $2,700 Year 9 depreualion 85.900 Year 3 depreciation WOV 13,300 Salvage value at end up third Year 30,000 Pichl on sale of Altet $ 66,700 Tax @ 351 23,345 After tax Salvope vale s 80600 - 23,345 $56,650 flow from Assen in year 3 = $94,130. (3) Cash Scanned with CamScanner