Stafford Motors

1.     (30 pts) Stafford Motors is considering the purchase of a new production machine for $1,000,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a before-tax reduction of labor costs by $400,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $100,000. In addition, it would cost $50,000 to install this machine properly. Also, because this machine is extremely efficient, its purchase would necessitate an increase in inventory of $150,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume simplified straight-line depreciation and that this machine is be being depreciated down to zero, a 34% marginal tax rate, and a required rate of return of 12%.

Needs to be shown in excel 

Don't use plagiarized sources. Get Your Custom Essay on
Stafford Motors
Just from $13/Page
Order Essay

1.     What is the initial outlay associated with this project?

2.     What are the annual after-tax cash flows associated with this project, for years 1-9?

3.     What is the terminal cash flow in year 10 (i.e., What is the annual after-tax cash flow in year 10 plus any additional cash flows associated with termination of the project)?

4.     Should this machine be purchased?

Calculator

Calculate the price of your paper

Total price:$26
Our features

We've got everything to become your favourite writing service

Order your assignment today!
Ace that class.

Order your paper
Live Chat+1(978) 822-0999EmailWhatsApp