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(Solved by Expert Tutors) 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 prime cost method (3 years useful life), and it would be sold after 3 years for $60,000.? The machine would require a $5,500 increase in net operating working capital (in year 0) and this will be returned at the end of year 3.? The 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?? (12 marks)
-Calculate NPV (6 marks) and advise whether this project should be accepted based on its NPV (2 marks).

 

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DATE ANSWERED

Apr 19, 2020

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