Al- Huda Inc. want to replace an old asset with a new one. The new asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a 5-year recovery period. The old asset, which originally cost $25,000 and will be sold for $10,000, has been depreciated using MACRS 5-year recovery period and three years of depreciation have already been taken. The new asset is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate

The annual incremental after-tax cash flow from operations for year 1

Answer 1

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The book value of the existing asset

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The tax effect on the sale of the old asset

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The initial cashflow equals

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The incremental depreciation expense for year 5 is