As the investment analyst for King breweries you are required to analyze the automated loom system in the Castle larger production line. The old system was purchased 5 years ago for $200,000. It falls in the accelerated cost recovery 5 year class and it has 5 years of remaining life and $50,000 salvage value 5 yeas from now.The current market value for the old system is $100,000. The new machine has a price of $300,000, plus an additional $50,000 in installation costs. the new system falls into the accelerated recovery class(depreciation) 5 year class,has a five year economic life and a $100,000 salvage value. The new system will require a $40,000 increase in the spare parts inventory. The primary advantage of the new machine is that it will decrease opening costs by $40,000 per year. The required rate of return is 12% with a marginal tax rate of 34%.

Question

calculate
1. the initial investment outlay in year0.
2. What are the incremental cash flow in year 1.
3. What is the net cash flow in the final year(year 5.
4. What is the net present value of the project.

Answer 1

study Valentines notes which don't cover a good amount of the questions of in the take home test or write the Saturday test. no jungle.....