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NEW PROJECT ANALYSIS UAE Manufacturing is considering the purchase of a new production machine for SAR 600,000.
NEW PROJECT ANALYSIS
UAE Manufacturing is considering the purchase of a new production machine for SAR 600,000. The purchase of this machine will result in an increase in earnings before interest and taxes of SAR 175,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost SAR 30,000 after taxes. It would cost SAR 10,000 to install the machine properly. Also, because the machine is extremely efficient, its purchase would necessitate an increase in inventory or SAR 40,000. 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 being depreciated down to zero, a 27 percent marginal tax rate, and a required rate of return of 12 percent.
DATA
Change in EBIT = 141,000
Purchase Price = 483,000
Training Session Fee= 17,000
Installation Fee = 14,500
Increase in Inventory = 15,000
Life = 10
Salvage Value = 0
Depreciation = 52,600
Tax Rate = 27%
Required rate of return = 12%
A)
What is the initial outlay associated with this project?
Outflows =
Purchase Price =
Training Session Fee =
Installation Fee =
Increased Working Inventory =
Net Initial Outlay =
B)
What are the annual after-tax cash flows associated with this project for years 1 through 9?
Differential Annual Free Cash Flows (Years 1-9)
Cash Flow =
Change in EBIT =
Change in taxes =
Change in depreciation =
Project's Free Cash Flows =
Note: please make it as an excel financial calculations
