Capital Budgeting Essay - 275 Words

Capital Budgeting (Essay Sample) Content: NameCourse InstructorDateCapital Budgeting What is the initial outlay associated with this project? The initial outlay associated with this project =the acquisition price + installation cost + inventory increase cost Initial outlay =$100,000+$5000+$5000 = $110,000What are the annual after tax cash- flows associated with this project for year 1 through year 9 The cash- flows associated with this project = earnings before interest and tax less depreciation and tax. Straight line depreciation = total cost of the machine/useful life =$11, 0000/10 years =$11,000 Tax =34%*35000 =$11900 Cash flows for 1 year =35000 (11000 +11900) =35000-22900 =$12100 Cash -flows for 9 years =12100*9=$108900 What is the terminal cash -flow in year 10 (what is the annual after tax cash- flow in year 10 plus any additional cash- flows associated with termination of this project)? Terminal cash- flow in year 10 =earnings before interest and tax less depreciation exp ected returns =35000-11000-(15%*110000) =35000-11000 -16500 =$7500 Annual after tax cash- flow in year 10 =earnings before interest and tax (depreciation + tax) =35000- (11900+11000) =$12100 Should this machine be bought? The decision whether to buy the ...