A local car plant is considering adding new machinery to tis plant. This machine would cost $15,000,000, and it will last 5 years. These machines wear out fast without proper maintenance, so they plan to do $200,000 of maintenance on the machine at the end of year 2 and 4. With the machine, they expect to have additional annual sales of $6,000,000 and they believe there will be an additional annual production cost of $2,200,000.
The estimated salvage value at the end of the machines 5 year life of $4,000,000 but the accountants will depreciate it straight line to zero. If the company purchases the machine, the expanded production will require an additional $150,000 in net working capital. The relevant tax rate is 21%.
Calculate all relevant cash flows for this project
If the required rate of return is 11%, determine whether the firm should purchase the machine.
For all of these calculations, do so by hand, not using excel whatsoever. SHOW ALL WORK.