ACME Manufacturing in investing in new technology to improve the productivity of its operations which is estimated to produce yearly savings of $45,000.
finance
Description
26. ACME Manufacturing in investing in new technology to
improve the productivity of its operations which is estimated to produce yearly
savings of $45,000. To achieve this,
ACME will need to undertake upfront capital investment of $100,000 and $25,000
in net working capital. The equipment
will be depreciated on a straight-line basis over 3 years. The working capital is expected to be recovered
at the end of year three. The new equipment
is estimated to have a salvage value of $50,000 at the end of the third year,
when its sold. ACME’s tax rate is 21%
and its required rate of return is 9.0%.
What is ACME’s estimated EAT (earnings after-tax, excluding gains or
losses on asset sales) for year three?
A.
$11,667.
B.
$45,000.
C.
$9,217
D.
$42,550.
E.
Insufficient information
27. Based on the information in question 26, what is the
FCF in year three?
A.
$107,050.
B.
$42,550.
C.
$9,217.
D.
$82,050.
E.
Insufficient information
28. Based on the information question 26, and further
assuming ACME requires a payback period of 2.0 years or better, will ACME make
this investment?
A.
Yes.
B.
No.
C.
Insufficient information
