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Mom's Cookies, Inc. is considering the purchase of a new cookie oven. The original cost of the old oven was $35,000, it is now five
Mom's Cookies, Inc. is considering the purchase of a new cookie oven. The original cost of the old oven was $35,000, it is now five years old, and it has a current market value of $15.000. 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 $17.500 and an annual depreciation expense of $3.500. 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 $27.000 and whose estimated salvage value is zero. Expected before tax cash savings from the new oven are $4200 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent Assume a 24 percent tax rate. What will the cash flows for this project be? (Note that the $35,000 cost of the old oven is depreciated over ten years at $3,500 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.) % Answer is complete but not entirely correct. 1 Year FCF 0 15,80500) % 5 2 3 465 00 5 3 465 00 $ 3 3.465 00 % 6 4 3.465 00 XS 5 3.465.00 S 4200.00 Mom's Cookies, Inc. is considering the purchase of a new cookie oven. The original cost of the old oven was $35,000, it is now five years old, and it has a current market value of $15.000. 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 $17.500 and an annual depreciation expense of $3.500. 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 $27.000 and whose estimated salvage value is zero. Expected before tax cash savings from the new oven are $4200 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent Assume a 24 percent tax rate. What will the cash flows for this project be? (Note that the $35,000 cost of the old oven is depreciated over ten years at $3,500 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.) % Answer is complete but not entirely correct. 1 Year FCF 0 15,80500) % 5 2 3 465 00 5 3 465 00 $ 3 3.465 00 % 6 4 3.465 00 XS 5 3.465.00 S 4200.00
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