Question
1. Your corporation is considering replacing older equipment. The old machine is fully depreciated and cost $56,580.00 seven years ago. The old equipment currently has
1.
Your corporation is considering replacing older equipment. The old machine is fully depreciated and cost $56,580.00 seven years ago. The old equipment currently has no market value. The new equipment cost $85,497.00 . The new equipment will be depreciated to zero using straight-line depreciation for the four-year life of the project. At the end of the project the equipment is expected to have a salvage value of $10,422.00 . The new equipment is expected to save the firm $30,015.00 annually by increasing efficiency and cost savings. The corporation has tax rate of 35.88% and a required return on capital of 12.21% . | |||||||
a) What is the total initial cash outflow? (show as negative number) | |||||||
b) What are the estimated annual operating cash flows? | |||||||
c) What is the terminal cash flow? | |||||||
d) What is the NPV for this project?
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