BAFN602: Corporate Finance - ABC Manufacturing Limited Case Study - Finance Assignment Help

Assignment Task:

Question 

ABC Manufacturing Limited has a machine currently in use that was originally purchased three years ago for $120,000. The firm depreciates the machine on the  straight-line basis using a five-year recovery period. The present machine will last for the next five years or, once removal and clean-up costs are taken into consideration, it could be sold now for $70,000. 

Required: 

Based on the above information, creating / using excel answer the following questions: 

(i) Calculate the initial investment. 

(ii) Prepare a depreciation schedule for both the proposed and the present machine. Both machines are depreciated using a five-year recovery period. Remember the present machine has only three years of depreciation remaining. 

(iii) Calculate the operating cash inflows for ABC for both the proposed and the present machine. 

(iv) Calculate the terminal cash flow associated with the project. 

(v) Assuming that the cost of capital of ABC is 7.60% and the average inflation rate for the next five years is estimated at 2.00%, calculate internal rate of return and net present value for the present and the proposed machine. Which alternative appears to be better.

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