please show work 6. (10 points) Steamboat Ag. Inc. recently purchased a new harv
ID: 2782453 • Letter: P
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please show work
6. (10 points) Steamboat Ag. Inc. recently purchased a new harvester. The new machine cost S190,000 and it is expected to generate net after-tax operating cash flows, including depreciation, of $52,000 per year. The machine has a five year expected life. The expected salvage values after-tax adjustments for the machine are given below, and the company's WACC is 11%. Based on the information below, should the firm operate the machine until the end of its 5 year physical life? If not, then when is its optimal economic life? Salvage Value Annual Net operating cash flow -$190,000 Year 52,000 52,000 52,000 52,000 52,000 $190,000 140,000 115,000 90,000 45,000 4Explanation / Answer
Statement showing the evaluation of the economic useful life of the Harvester Tn a b c= a*b d = Summation of C e f= e*b g= d+f Year Net Operating Cash flows PV Factor @ 11% PV of Tn Cash flows Cumulative PV of Cash Flows Salvage Value at year Tn PV of Salvage Value Net Present Value of Cash flows as at T0 0 -1,90,000.00 1.0000 -1,90,000.00 -1,90,000.00 1,90,000.00 1,90,000.00 - 1 52,000.00 0.9009 46,846.85 -1,43,153.15 1,40,000.00 1,26,126.13 -17,027.03 2 52,000.00 0.8116 42,204.37 -1,00,948.79 1,15,000.00 93,336.58 -7,612.21 3 52,000.00 0.7312 38,021.95 -62,926.83 90,000.00 65,807.22 2,880.39 4 52,000.00 0.6587 34,254.01 -28,672.82 45,000.00 29,642.89 970.07 5 52,000.00 0.5935 30,859.47 2,186.64 - - 2,186.64 No the firm should not operate the machine until the end of 5 years since the Net cash flows are highest at year 3.
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