Question
Last year Fly-by-Night Inc. purchased a machine for $7,500. Today it has decided to sell the old machine for $5,500 and replace it with a
Last year Fly-by-Night Inc. purchased a machine for $7,500. Today it has decided to sell the old machine for $5,500 and replace it with a new machine that costs $12,000. The new machine will be used for one year and then sold for $10,000. (If they had kept the old machine, it would have been sold for $1,000.) The new machine will increase EBITDA by $7,000 but requires an increase in raw materials inventory of $2,000. What are the terminal year cash flows? The tax rate is 40%. (Assume that depreciation is not tax deductible and that there is no tax on the disposition of assets.)
A. $14,400
B. $11,533
C. $9,934
D. $7,934
E. $15,200
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