You are evaluating a proposal to buy a new machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine is depreciated using straight line method, and it would be sold after 3 years for $60,000. The machine would require a $5,500 increase in net operating working capital. There would be no effect on revenues, but pre-tax labour costs would decline by $44,000 per year. The marginal tax rate is 35%, and the WACC is 12%.
What are the project's annual cash flows during years 0, 1, 2 and 3
The solution is provided in excel format showing step by step ...
The file shows step by step evaluation of the project under different capital budgeting techniques.