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cfc session 7 ch8

# The th machine will cost 50000 plus 20000 for

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Unformatted text preview: an Asset Expansion Project Basket Wonders (BW) is considering the purchase of a new basket weaving machine. The Th machine will cost \$50,000 plus \$20,000 for shipping and installation and falls under the 3year MACRS class. NWC will rise by \$5,000. Lisa Miller forecasts that revenues will increase by \$110,000 for each of the next 4 years and will for each of the next years and will then be sold (scrapped) for \$10,000 at the end of the fourth year, when the project ends. Operating costs will rise by \$70,000 for each of the next four years. BW is in the 40% tax bracket. 22 Certified Financial Controller CFC 11 Initial Cash Outflow a) b) c) d) e) f) \$50,000 + 20,000 + 5,000 – 0 (not a replacement) + (–) 0 (not a replacement) replacement) = \$75,000* 75,000* * Note that we have calculated this value as a “positive” because it is a cash OUTFLOW (negative). 23 Certified Financial Controller CFC Incremental Cash Flows Year 1 \$40,000 a) Year 2 \$40,000 Year 3 \$40,000 Year 4 \$40,000 b) – 23,331 31,115 10,367 5,187 c) = \$16,669 \$ 8,885 \$29,633 \$34,813 d) – 6,668 3,554 11,853 13,925 e) = \$10,001 \$ 5,331 \$17,780 \$20,888 f) + 23,331 31,115 10,367 5,187 g) = \$33,332 33, \$36,446 36, \$28,147 28, \$26,075 26, 24 Certified Financial Controller CFC 12 TerminalTerminal-Year Incremental Cash Flows a) \$2...
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