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DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The current machine
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The current machine las a book value of $500,000 and is being depreciated by $100,000 per year over its remaining useful life of 5 years. The current machine would be worn out and worthless in 5 rears, but DeYoung can sell it now to a Halloween mask manufacturer for $150,000. If DeYoung doesn't replace the current machine, it will have no salve its useful life. The new machine has a purchase price of $850,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable lepreciation rates are 20.00%,32.00%,19.20%,11.52%,11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, indicated by a minus sign. $ b. What is the incremental depreciation tax shield each year (i.e., the change taxes due to the change in depreciation expenses) if the replacement is made? (Hint First calculate the annual depreciation expense for the new machine and compare it to the depreciation on the old machine.) Do not round intermediate calculions. answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign. c. What is the after-tax salvage value at Year 5 ? Do not round intermediate calculations. Round your answer to the nearest dollar. Negative indicated by a minus sign. $ d. What are the total incremental project cash flows in Years 0 through 5 ? What is the NPV? Do not round intermediate calculations. Round your answers to the nearest dollar
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