RCB Corporation Is Considering the Purchase of a Machine for Which

question 23

Essay

RCB Corporation is considering the purchase of a machine for which the initial cash outlay will be $100,000.Predicted net cash inflows before depreciation and taxes are $25,000 per year for the next five years.The machine will be depreciated (using the straight-line method)over the 5-year period with a zero estimated salvage value at the end of the period.The corporation's marginal tax rate is 40 percent and its cost of capital is 12 percent. (a) Determine the annual net cash flow after depreciation and taxes for years 1-5.
(b) Determine the internal rate of return.
(c) Determine the net present value.
(d) Should RCB purchase the machine? Why or why not?

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Definitions:

Pay

The monetary compensation received by an individual for their services or work.

Wheat

A cereal grain which is a worldwide staple food, used for making breads, pastas, and other food products.

Certainty

Refers to the assurance or confidence in the truth or occurrence of something without doubt.

Fixed Amount

A specific sum of money that does not change over time or with use, often referring to payments or charges.