The Munsell Colour Company is considering the purchase of a new batch polymer-bonding machine for producing its number one line of crayons. Although the machine being considered will not produce any increase in sales revenues, it will result in the before-tax reduction of labour costs by $200,000 per year. The machine has a purchase price of $250,000, and it would cost an additional $10,000 to install the machine. In addition, to operate this machine, inventory must be increased by $15,000. The machine is categorized as 10-year property. After 2 years, it can be sold for $150,000. The tax rate is 34% and the cost of capital is 15%. What is the initial cash flow for the project? MACRS Depreciation Rates
$$\begin{array} { | c | c | c | }
\hline \text { Year } & \mathbf { 1 0 - Y e a r } & \mathbf { 1 5 } - \text { Year } \
\hline 1 & 10.00 \% & 5.00 \% \
\hline 2 & 18.00 \% & 9.50 \% \
\hline 3 & 14.40 \% & 8.55 \% \
\hline
\end{array}$$

Question

The Munsell Colour Company is considering the purchase of a new batch polymer-bonding machine for producing its number one line of crayons. Although the machine being considered will not produce any increase in sales revenues, it will result in the before-tax reduction of labour costs by $200,000 per year. The machine has a purchase price of $250,000, and it would cost an additional $10,000 to install the machine. In addition, to operate this machine, inventory must be increased by $15,000. The machine is categorized as 10-year property. After 2 years, it can be sold for $150,000. The tax rate is 34% and the cost of capital is 15%. What is the initial cash flow for the project? MACRS Depreciation Rates
$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \mathbf { 1 0 - Y e a r } & \mathbf { 1 5 } - \text { Year } \
\hline 1 & 10.00 \% & 5.00 \% \
\hline 2 & 18.00 \% & 9.50 \% \
\hline 3 & 14.40 \% & 8.55 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

The Answer of The Munsell Colour Company is considering the purchase of a new batch polymer-bonding machine for producing its number one line of crayons. Although the machine being considered will not produce any increase in sales revenues, it will result in the before-tax reduction of labour costs by $200,000 per year. The machine has a purchase price of $250,000, and it would cost an additional $10,000 to install the machine. In addition, to operate this machine, inventory must be increased by $15,000. The machine is categorized as 10-year property. After 2 years, it can be sold for $150,000. The tax rate is 34% and the cost of capital is 15%. What is the initial cash flow for the project? MACRS Depreciation Rates
$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \mathbf { 1 0 - Y e a r } & \mathbf { 1 5 } - \text { Year } \
\hline 1 & 10.00 \% & 5.00 \% \
\hline 2 & 18.00 \% & 9.50 \% \
\hline 3 & 14.40 \% & 8.55 \% \
\hline
\end{array}$$

The Munsell Colour Company Is Considering the Purchase of a New