D Question 25Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $20,000 to install themachine and Builtrite will need to keep an extra $7,000 in inventory on hand due to the machine's efficiency. The currentmachine being used is 5 years old and originally cost $60,000 and is being depreciated down to zero over a 10-year period. Ifthe current machine were sold today, it could be sold for $45,000. In four years, the new machine is estimated to have asalvage value of $32,000. Two employees will need to be trained for the new machine at a cost of $4000. The new machine isexpected to produce $80,000 in annual savings. Builtrite is in the 34% tax bracket.What is the terminal cash flow for the new machine at the end of year 4?$21,120O$28,600O $35,600O $39.600

Terminal cash flow is the cash flow available when equipment is used and sold at the end of project…

Answered: Question 25 Builtrite is considering…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 13PROB

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QUESTION 5 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the net present value of the project.
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