Sandals, Inc. is considering the purchase of a leather cutting machine that will allow it...
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Sandals, Inc. is considering the purchase of a leather cutting machine that will allow it to expand its product lines. It will cost $14,000 and will be depreciated under the 3-year MACRS schedule (0.33, 0.45, 0.15, 0.07). It is estimated to have a salvage value of $2,500 in 4 years. If this machine is purchased, revenues are expected to increase by $8,000 and costs are expected to increase by $5,000. In addition, there will be a $6,000 increase in work in process inventory. The firm's tax rate is 31 percent and the required return for this project is 12 percent.
a) What is the initial outlay for this project? (5 pts) b) What is the incremental after-tax cash flow for year 1? (5 pts) c) What is the terminal year cash flow?
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