Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%.

Question

08-08-2022
Business

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Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%.

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mapooja789 mapooja789 · Answer 1 · 2022-08-14T02:41:24+02:00

The NPV of the venture is -$sixteen,752.55.

In accounting, the working capital overall is typically derived from the figures for present-day belongings and present-day liabilities recorded on the stability sheet. as an instance, a corporation with $2 hundred,000 in cutting-edge property and $100,000 in modern liabilities has operating capital of $100,000.

The working capital calculation is working Capital = present-day assets - modern Liabilities. as an example, if an agency's stability sheet has 300,000 total modern assets and 200,000 total modern liabilities, the corporation's working capital is one hundred,000 (property - liabilities).

Working capital is just what it says – it's for the cash you have to paint with to meet your short-time period needs. it is vital because it's miles a degree of an organization's capacity to repay quick-term costs or money owed.

Learn more about Working capital here: https://brainly.com/question/26214959

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