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Evaluating the proposed acquisition of a machine

Need to discuss my findings for the following problems. Discussion should be 1 paragraph long for both questions. (See Attachments)

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1. Edelman Engineering is considering including two pieces of equipment,
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Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,100, and that for the pulley system is $22,430. The firm's cost of capital is 14 percent. After-tax cash flows, including depreciation, are as follows:

2. The Campbell Company is evaluating the proposed acquisition of a new milling machine.
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The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use for your firm. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The machine would require an increase in net working capital (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm$44,000 per year I before-tax operating costs, mainly labor. Campbell's margin tax rate is 35 percent.

a. What is the net cost of the machine for capital budgeting purposes? (that is, what is the Year 0 net cash flow?)

b. What are the net operating cash flows in Years 1, 2, and 3?

c. What is the terminal year cash flow?

d. If the project's cost of capital is 12 percent, should the machine be purchased?
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Solution Preview

Need to discuss my findings for the following problems. Discussion should be 1 paragraph long for both questions. (See Attachments)

---
1. Edelman Engineering is considering including two pieces of equipment,
________________________________________
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are ...

Solution Summary

This provides the steps for evaluating the proposed acquisition of a new milling machine.

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