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Check my work 6 Rockyford Company must replace some machinery that has zero book value and a current market value of $2,600. One posslbility is to invest in new machinery costing $48,000. This new machinery would produce estimated annual pretax cash operating savings of $19,200. Assume the new machine will have a useful life of 4 years and depreciation of $12,000 each year for book and tax purposes It will have no salvage value at the end of 4 years. The investment in this new machinery would require an additional $3,800 Investment of net working capital. (Assume that when the old machine was purchased, the Incremental net working capital required at the time was $0) 0.25 If Rockyford accepts this investment proposal, the disposal of the old machinery and the investment in the new one will occur on December 31 of this year. The cash flows from the Investment are expected to occur over a four-year period Rockyford is subject to a 40% income tax rate for all ordinary income and capital gains and has a 14% weighted-average after-tax cost of capital. All operating and tax cash flows are assumed to occur at year-end. (For Parts 2 and 3, use the relevant table from Appendx References C-Table 1 or Table 2) Required: 1. Determine the after-tax cash flow arising from disposing of the old machinery 2. Determine the present value of the after-tax cash flows for the next 4-years attributable to the cash operating savings. 3. Determine the present value of the tax shield effect of depreclation for year 1 4. Which one of the following is the proper treatment for the additional $3,800 of net working capital required in the current year? Complete this question by entering your answers in the tabs below. Required 1Required 2 Required 3Required 4 Which one of the following is the proper treatment for the additional $3,800 of net working capital required in the current year? Oa. It should be ignored in capital budgetng because it is not a capital investment Ob. It is a sunk cost that needs no consideration in capital budgeting. . It should be reated as part of te intial investment when determining the net prosant value It should be spread over the machinery's four-year life as a cash outfow in each of the years Oo. It should bo inciluded as part of the cost of the now machine and dapraciated
