Question
A firm is considering replacing its equipment to meet increased demand for its product. Old was purchased 2 years ago at a cost of $
A firm is considering replacing its equipment to meet increased demand for its product. Old was purchased 2 years ago at a cost of $ 15,00,000/= and It is being depreciated under MACRS method, using 5-years recovery period. Cost of new equipment is $ 1.9 million plus $ 1,00,000/= in installation costs. Under MACRS method, new equipment fails under same property as old equipment. Additional sales from the replacement should amount to $ 1.2 million per year and additional costs (excluding depreciation) will amount to 40% of additional sales. The firm has tax rate of 40%.
What incremental operating cash inflows will result from replacement for each of the next 6 years?
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