Question
Magnum Corporation (MAG) is deciding whether to replace its old sorbet making machine with a new sorbet making machine. Today, the company will borrow $30,000
Magnum Corporation (MAG) is deciding whether to replace its old sorbet making machine with a new sorbet making machine.
Today, the company will borrow $30,000 to fund the purchase of the new sorbet making machine.
The new sorbet making machine costs $110,000 today. Assume the company tax rate is 30%.
The new sorbet making machine has a useful life of eight years, and will result in an increase in inventory by $7,000 from its existing level of $5,000.
The old sorbet making machine can be sold today for $20,000, and is fully depreciated for tax purposes.
During the last six months, MAG incurred $5,000 of costs to run surveys and taste trials of new sorbet flavours that they want to make with the new sorbet machine.
MAG wants to sell its sorbet in a new type of packaging which is more environmentally friendly.
MAG has an idle packing machine located in its factory which can produce this new packaging. This packing machine has a current market value of $20,000, and a book value of $6,000.
The new sorbet making equipment will cause accounts receivable to decrease by $1,000 from its existing level of $3,000.
What are the 'cash flows at the start'? Describe and list separately each cash flow and the corresponding amount on a new line
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