Semi-Conductors is interested in buying a new machine which is expected to cost $80,000. In addition,...
- Semi-Conductors is interested in buying a new machine which is expected to cost $80,000. In addition, the company will pay $15,000 in shipping and $10,000 in installation costs. The MACRS category is five years and the company expects to sell the machine at 25% above book value at the end of year 5. Before buying this machine, it paid a consultant $5,000 fee for her advice.
The new machine will increase annual revenue by $10,000 while decreasing annual operating costs by $25,000. Its tax rate is 30%.
Prepare a complete statement of cash flows—initial, operating & terminal. (40 points)
please show the steps as well. thank you
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Homework Answers
INITIAL INVESTMENT = 80000 +15000+10000 + 5000 = 110000 ( Includes transportation and installation charges)
OPERATING CASH FLOWS
YEAR 0 1 2 3
INITIAL INVESTMENT -110000
Incremental revenue 10000+25000 10000+25000 10000+25000
EBDT =35000 =35000 =35000
-assuming dep (10%) -11000 -9900 -8910
=EBT 24000 25100 26090
-TAX (30%) -7200 7530 7827
=EAT 16800 17570 18263
+ DEP = CF 27800 27470 27173
=TERMINAL VALUE 137500
TOTAL -110000 27800 27470 164673
PV VALUE(AT 6.3%) 0.940 0.884 0.832
PRESENT VALUE -110000 26132 24283.48 137007.936
CASH OUTFLOW =110000
CASH INFLOW = 187432.416
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