ENG106W12_HW9-assignment _updated 3-10-12_

ENG106W12_HW9-assignment _updated 3-10-12_ - ENG 106...

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1 ENG 106 Homework #9 Solutions Winter 2012 Due: Wed, Mar 14, 3 pm, HW box 9.X The J.F. Manning Metal Company is considering the purchase of a new milling machine during year zero. The machine’s base price is $135,000, and it will cost another $15,000 to modify the machine for special use by the firm, resulting in a $150,000 cost base for depreciation. The machine falls into the MACRS seven year property class and will be sold after three years for $80,000 (CD). Use of the machine will require an increase in net working capital (inventory) of $10,000 at the beginning of the project year. The machine will have no effect on revenues, but it is expected to save the firm $80,000 (today’s dollars) per year in before-tax operating costs – mainly labor. The firm’s marginal tax rate is 40%, and this rate is expected to remain unchanged over the project’s duration. The firm’s market interest rate is 20% (MARR). Assume the general inflation rate f = 6% would affect all cash flows that change with inflation,
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This note was uploaded on 04/03/2012 for the course ENGIN 106 taught by Professor Fizali during the Spring '12 term at Laney College.

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