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(Solution document) Dillon Corp is considering adding a new manufacturing plant, that has an invoice price of $1.5 million and is expected to cost an additional $150,000...


Dillon Corp is considering adding a new manufacturing plant, that has an invoice price of $1.5 million and is expected to cost an additional $150,000 to build. The new plan is much more fission than the current plan use by the company and will increase the company's revenues by $500,000 per year. The new plant will have additional labor cost of 50,000 and gas cost of $100,000. However the new manufacturing plant will reduce scrap cost by $20,000 per year. Management estimate states that The company will incur an additional investment in working capital of $75,000 initially, but it would be recovered at the end of the projects 5 year life. Dillion uses The three-year MACRS method to depreciate the new plant and management thinks the plant would have a value of 250,000 at the end of its 5 you're operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.42%, per the US tax code. If the marginal tax rate is 40%, and a 8% WACC is applicable for the project.


What is the plants net initial cash outlay (CFo) and year 1 (CF1) relevant net cash flow?

 


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