Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Komatsu Cutting Technologies is considering replacing one of its CNC machines with one that is newer and more efficient. The firm purchased the CNC machine

Komatsu Cutting Technologies is considering replacing one of its CNC machines with one that is newer and more efficient. The firm purchased the CNC machine 10 years ago at a cost of $150,000. The machine had an expected economic life of 12 years at the time of purchase and an expected salvage value of $12,000 at the end of the 12 years. The original salvage estimate is still good, and the machine has a remaining useful life of 2 years. The firm can sell this old machine now to another firm in the industry for $35,000. A new machine can be purchased for $175,000, including installation costs. It has an estimated useful (economic) life of 8 years. The new machine is expected to reduce the cash operating expenses by $30,000 per year over its 8-year life, at the end of which the machine is estimated to be worth only $5000. The company has a MARR of 12%. The asset is classified as a Class 43 Property with a CCA rate of %30. The firms marginal tax rate is 40%. Compute the cash flows associated with retaining the old machine in years 1 to 2.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alan J. Marcus, Alex Kane

6th Edition

0072861789, 9780072861785

More Books

Students also viewed these Finance questions

Question

Describe Hartleys seven varieties of pleasure.

Answered: 1 week ago