The th machine will cost 50000 plus 20000 for

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

This note was uploaded on 05/28/2013 for the course FINANCE economy taught by Professor Nill during the Fall '12 term at Bronx School Of Law And Finance.

Ask a homework question - tutors are online