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Calculating 'cash flows over the life' Melon Corporation is considering whether to replace its old chip making machine with a new one that costs $320,000
Calculating 'cash flows over the life' Melon Corporation is considering whether to replace its old chip making machine with a new one that costs $320,000 immediately. Melon Corporation will borrow $100,000 to partly fund the machine. A competitor has agreed to buy the old chip making machine immediately for $80,000. Two months ago, Melon Corporation paid Big Consulting Group $4,000 in consulting fees for advising on the decision to purchase a new chip making machine. The anticipated annual sales that the new chip making machine will generate will be 15% higher when compared to the sales generated by the old chip making machine. The old chip making machine was generating sales of $500,000 annually, incurring annual depreciation expenses of $10,000, and has 20 years left until it reaches the end of its useful life. This new chip making machine has a 20-year life for tax purposes, and is able to reduce annual operating expenses by $90,000 each year from $300,000. Assume the company tax rate is 30%. What are the 'cash flows over the life
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