Question
golden gate co. is evaluating the replacement of its existing manufacturing equipment with a new equipment. the old equipment is 5 years old and it
golden gate co. is evaluating the replacement of its existing manufacturing equipment with a new equipment. the old equipment is 5 years old and it was originally bought four $170,000,the current book value of it is $82,000, and its useful life 10 years . it can be sold for $13,000 at the end of it's life. the old equipment current market price is $115,000.golden gate co. will buy the new equipment for $330,000 which has a useful life of 6 years, depreciation is based on straight line method. management expect to sell it at the end of its life for $80,000. the revenues are expected to increase in the coming 5 years as follows respectively : $10,000 , $25,000 , $25,000, $20,000 , $25,000 management expected to reduce productions cost by $60,000 each year of its operation it will also reduce work- in progress and inventory by $10,000 as soon as it placed in service . the company is taxed at an income tax rate of 35% and no tax credit assume cost of capital is 20% a- calculate the incremental CF from operation for (Y2) b- calculate the net CF (incremental) for (Y4) c- calculate the incremental CF from operation for (Y3)
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