DISCUSS QUESTION #4 (Refer to Handouts for Chapter 12 posted in Content) The Oxford Equipment Company purchased a machine 5 years ago at a cost of $85,000. The machines expected life is 10 years and is being depreciated by the straight-line method at a rate of $8,500 per year. If the machine is kept, it can be sold for $15,000 at the end of its expected life A new machine can be purchased for $170,000. It has an expected life of 5 years and will reduce cash operating expenses by $40,000 per year. Sales will not change. At the end of its useful life, the machines estimated value is zero. The new machine is eligible for 100% bonus depreciation at the time of purchase. The old machine can be sold today for $55,000. The tax rate is 25% and the appropriate WACC is 9% PRIMARY POST: Question 4 COMPLETE THE FOLLOWING CHART: YEAR | 3 | 4 5 Net Investment Incremental cash flow from cash op exp Depreciation tax impact Opportunity cost of old machine CASH FLOW per YEAR: PV @ 9% NPV = $ Should the machine be purchased? DISCUSS QUESTION #4 (Refer to Handouts for Chapter 12 posted in Content) The Oxford Equipment Company purchased a machine 5 years ago at a cost of $85,000. The machines expected life is 10 years and is being depreciated by the straight-line method at a rate of $8,500 per year. If the machine is kept, it can be sold for $15,000 at the end of its expected life A new machine can be purchased for $170,000. It has an expected life of 5 years and will reduce cash operating expenses by $40,000 per year. Sales will not change. At the end of its useful life, the machines estimated value is zero. The new machine is eligible for 100% bonus depreciation at the time of purchase. The old machine can be sold today for $55,000. The tax rate is 25% and the appropriate WACC is 9% PRIMARY POST: Question 4 COMPLETE THE FOLLOWING CHART: YEAR | 3 | 4 5 Net Investment Incremental cash flow from cash op exp Depreciation tax impact Opportunity cost of old machine CASH FLOW per YEAR: PV @ 9% NPV = $ Should the machine be purchased