Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mom s Cookies, Incorporated, is considering the purchase of a new cookie oven. The original cost of the old oven was $ 3 4 ,

Moms Cookies, Incorporated, is considering the purchase of a new cookie oven. The original cost of the old oven was $34,000; it is now five years old, and it has a current market value of $14,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $17,000 and an annual depreciation expense of $3,400. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $26,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $4,100 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate.
What will the cash flows for this project be?
Note: Note that the $34,000 cost of the old oven is depreciated over ten years at $3,400 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.

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

Financial Mathematics

Authors: Cacildo Marques

1st Edition

8741574710, 979-8741574713

More Books

Students also viewed these Finance questions