Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Intro Your company makes and sells shaving cream. You're thinking of replacing one of your packaging machines. Both the new and the old machine would
Intro Your company makes and sells shaving cream. You're thinking of replacing one of your packaging machines. Both the new and the old machine would last another 5 years. Your annual sales will remain constant at $50,000 The old machine could be sold for $5,000 today or $2,000 in 5 years, after taxes. The annual cost of running the machine is $26,000 and its annual depreciation expense is $2,000. The new machine costs $32,000 today and could be sold for $6,400, after taxes, in 5 years. The annual cost of running the machine is $15,000 and its annual depreciation expense is $6,400. The new machine doesn't require any additional net working capital. Your marginal tax rate is 34% and the cost of capital for this project is 12%. Your task is to find out if you should replace the machine. Part 1 | Attempt 1/10 for 10 pts. What would be the incremental cash flow from assets in year O if you replaced the machine? 0+ decimals Submit Part 2 IB Attempt 1/10 for 10 pts. What would be the cash flow from assets in each of the first 4 years if you kept the old machine? 0+ decimals Submit Part 3 IB Attempt 1/10 for 10 pts. What would be the free cash flow in each of the first 4 years if you bought the new machine? 0+ decimals Submit Part 4 IBAttempt 1/10 for 10 pts. What would be the cash flow from assets in year 5 if you kept the old machine? 0+ decimals Submit Part 5 18 | Attempt 1/10 for 10 pts. What would be the cash flow from assets in year 5 if you bought the new machine? 0+ decimals Submit Part 6 IB Attempt 1/10 for 10 pts. What is the NPV of the replacement project? 0+ decimals Submit
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started