Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Crunchy Cookie Corp. is replacing an entire baking line that was purchased for $420,000 eight years ago. This old equipment has been fully depreciated. The

image text in transcribed
Crunchy Cookie Corp. is replacing an entire baking line that was purchased for $420,000 eight years ago. This old equipment has been fully depreciated. The new, higher capacity line being analyzed, will have an installed cost of $940,000 (at Yr 0) and can be depreciated as a 7-year MACRS asset. Due to the increased production capacity, Crunchy expects annual revenues to increase from $1,000,000/yr to $1.447,000/yr, and operating expenses to increase from $600,000/yr to $770,000/yr. Revenues and expenses are expected to remain at these higher levels for each year of the project life. The older machine being replaced will be sold for $92,000 at the time of the new project startup. The firm's marginal tax rate is 21%. What is the annual operating cash flow for year 2 of this project? (Only need to calculate year 2 annual cash flow.) If needed, the MACRS rates for the first three years, for a 7-year MACRS asset, are as follows: Yr 1 Rate: 14% Yr 2 Rate: 25% Yr 3 Rate: 17% (Round your answer to the nearest whole number -- no decimal places needed) Your

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting A Focus On Interpretation And Analysis

Authors: Richard F Kochanek, A Douglas Hillman

7th Edition

1111061750, 9781111061753

More Books

Students also viewed these Finance questions