Question

12 XYZ Company is considering whether a project requiring the purchase of new equipment is worth investing. The cost of a new machine is $340,000 including shipping and installation. The project will increase annual revenues by $400,000 and annual costs by $100,000. The machine will be depreciated via straight-line depreciation for three years to a salvage value of $40,000. If the firm does this project, $30,000 in net working capital will be required, which will be fully recaptured at the end of the project. The estimated salvage value of the machine after the project is $30,000. What is the terminal value of this project if the tax rate is 40 %? Round to the nearest penny. Do not include a dollar sign in your answer. 108400.00 You are evaluating a capital project with a Net Investment of $400,000, which includes an increase in net working capital of $16,000. The project has a life of 12 years with an expected salvage value of $3,000. The project will be depreciated via simplified straight- line depreciation. Revenues are expected to increase by $90,000 per year and operating expenses by $8,000 per year. The firms marginal tax rate is 40 percent and the cost of capital for this project is 15%. What is the net present value of this project? Round to the nearest penny. Do not include a dollar sign. 10 -60594.67 Submit Assessment

please do not round until the end

answer only 7,8,9 please

Answer 1

9]	Recapture of NWC		$     30,000.00
	Salvage value	$       30,000.00
	Book value	$       40,000.00
	Loss on sale	$       10,000.00
	Tax shield on loss at 40%	$         4,000.00
	After tax salvage value = 30000+4000 =		$     34,000.00
	Terminal value of the project		$     64,000.00
	Note:
	Operating cash flow for 3th year = (400000-100000-100000)*(1-40%)+100000 =	$   2,20,000.00
	Inclusive of OCF, the total cash flow for Year 3 = 220000+64000 =	$   2,84,000.00
7]	Depreciation for Year 2 = (220000+7000+3000-5000)/5 =	$       45,000.00
8]	CF = (330000-125000-50000)*(1-34%)+50000 =	$   1,52,300.00