Question
A firm is contemplating the purchase of new automated plant costing $240,000 to replace a n existing machine that can be sold for $ 110
A firm is contemplating the purchase of new automated plant costing $240,000 to replace a n existing machine that can be sold for $ 110 ,000 today . The existing machine (which can continue to be operated for a further four years) was purchased one year ago for $100,000 and is being depreciated over its five - year life . For each year of its life t he new plants technology will allow the firm to reduce annual expenses by $80 ,000. Annual sales will remain at the current level of $160,000 with the new machine. Although the new machine will only be used for a four - year period, it has an eight - year depreciable life and a n assumed disposal value of zero in four years time. What a re the relevant cash flows for each year of the new machines life ? Assume the company tax rate is 30%.
THE ANSWERS ARE;
CF(0)= -$139,000 CF(1-3)= $59,000 CF(4)= $95,000
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