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Intro HipHop Inc. makes and sells trampolines. The company is considering replacing one of its manufacturing machines with a new one. Both the new and
Intro HipHop Inc. makes and sells trampolines. The company is considering replacing one of its manufacturing machines with a new one. Both the new and the old machine would last another 3 years. Annual sales will remain constant. The old machine was bought 3 years ago for $20,000. When it was installed, the machine had an economic and tax life of 6 years. It is still being linearly depreciated to zero. The machine could be sold for $8,000 today or $2,000 in 3 years. The annual cost of running the machine is $30,000. The new machine costs $45,000 today and could be sold for $9,000 in 3 years, when it will be decommissioned. The machine falls into the 3-year MACRS category, with the following depreciation rates: Year 1 2 Depreciation rate 33% 45% 3 15% 4 7% The annual cost of running the machine is $13,000. The new machine requires additional net working capital of $8,000 that can be recouped at the end of the project. The marginal tax rate is 34% and the appropriate cost of capital for this project is 9%. Part 4 IB Attempt 7/10 for 10 pts. What would be the incremental cash flow from assets in year 3 if the firm replaced the machine? 0+ decimals Submit
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