Five years ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over ten years and has no salvage value.

You expect that the new machine will reduce the current investment in working capital by $10,000.

The current machine is being depreciated on a straight-line basis over a useful life of 11 years and has no salvage value. The current market value of the old machine is $50,000 Your companys tax rate is 45%, and the opportunity cost of capital for this type of equipment is 10%.

Required:

1. Tax loss or gain on the selling the old plant. (2 Points)
2. The initial cash flow on the new plant. (3 points)
3. Incremental depreciation expenses which can be claimed for the taxes (1 Points)