Extended Capital Budgeting Example

Extended Capital Budgeting Example -...

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Now We are Ready to Work Through  an Extended Capital Budgeting  Example Capital Budgeting:   the process of planning  for purchases of long-term  assets. Our firm must decide whether to purchase a  new plastic molding machine for  $220,000.   * The cost of the new machine is  $220,000.   * Installation will cost  $10,000. * $10,000  in net working capital will be needed at the time of  installation. * The project will  increase annual revenues  by  $125,000  per  year and  operating costs will increase  by  $45,000 . * Simplified       straight line depreciation  is used. * i.e. the firm will depreciate the machine to  $0 . * The project will last  5 years. * Realizable  salvage value   at year 5  =  $50,000 . * 14%  cost of capital;  34%  marginal tax rate. * Capital Budgeting: A Three Step Process * Evaluate Cash Flows * Evaluate Risk * Make Decision        (i.e. ACCEPT or REJECT)
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Extended Capital Budgeting Example -...

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