A drill press costs $30,000 and is expected to have a ten-year life. The press will be depreciated on a straight-line basis over ten years to a zero estimated salvage value. This machine is expected to reduce the firms operating costs by $4,500 per year. If the firm is in the 40% tax bracket, determine the annual operating cash flow generated by the drill press.

5. Ten years ago J-Bar Company purchased a lathe for $250,000. It was being depreciated on a straight-line basis to an estimated $25,000 salvage value over a 15-year period. The firm is considering selling the old lathe and purchasing a new one. The new lathe would cost $500,000. The firms marginal tax rate is 40 percent. Determine the net initial investment required to purchase the new lathe if the old lathe is sold for $100,000.

6. Capital Foods purchased an oven 5 years ago for $45,000. The oven is being depreciated over its estimated 7-year life using MACRS depreciation to a salvage value of $5,000. Capital is planning to replace the oven with a more automated one that will cost $150,000 installed. If the old oven can be sold for $30,000, what is the tax liability? Assume a marginal tax rate of 40 percent.