LR Industries is considering the purchase of a new piece of equipment to meet th
ID: 2688078 • Letter: L
Question
LR Industries is considering the purchase of a new piece of equipment to meet the increased demand for its Model XL-4 tennis racket. The equipment costs $100,000 plus $5,000 for installation and shipping, the resulting increased production is expected to require additional NWC of $25,000. What is the net investment that LR Industries will make on the new equipment? The new equipment that LR industries will purchase would be depreciated using simplified straight-line method and is considered 10-year expected life. The equipment is expected to enable the firm expand sales by $80,000 per year with an increase in cash operating expenses amounting to 60% of the increase in sales. The firm's marginal tax rate is 34%. What is the annual operating cash flows for the first three years? LR Industries estimates that the equipment's salvage value will be $10,000 at the end of its 10-year life. The company expects to release its $25,000 in additional NWC. If the firm's marginal tax rate is 34%, what is the terminal cash flow?Explanation / Answer
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