Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Net cash flow No terminal value Central Laundry and Cleaners is considering replacing an existing place of machinery with a more sophisticated machine. The old

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
Net cash flow No terminal value Central Laundry and Cleaners is considering replacing an existing place of machinery with a more sophisticated machine. The old machine was purchased yours ago at a cost of $45,600, and this amount was being deprecated under MACRS using a 5-year recovery period. The machine has 5 years of unable to remaining. The new machine that is being considered 575.000 and requires $4,300 in installation costs. The new machine would be depreciated under MACRS using a year recovery period. The firm can currently sell the old machine for $54,300 without incurring any removal of cleanup costs. The firm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation and forest) associated with the new and the old machines for the next 5 years are given in the table Table contains the applicable MACRS depreciation percentages) Note: The new machine will have no terminal value at the end of years, a. Calculate the initial investment associated with replacement of the old machine by the new one. b. Determine the incremental operating cash inflows associated with the proposed replacement (Note: Be sure to consider the depreciation in year 6.) e. Depict on a time in the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision Data Table Data Table Recovery year 3 years 33% 45% 15% 7% 2 3 4 5 (Click on the icon located on the top right corner of the data table below in order to copy its contents into a spreadsheet.) New machine Old machine Expenses Expenses (excluding depreciation (excluding depreciat Year Revenue and interest) Revenue and interest) 1 $750,700 $720,800 5674,000 $650.000 2 750,700 720,800 676,000 659.000 3 750.700 720,800 680,000 659,000 4 750.700 720,800 678,000 650.000 5 750,700 720 800 674,000 659,000 Percentage by recovery year 5 years 7 years 20% 14% 32% 25% 19% 12% 12% 12% 9% 5% 9% 95 10 years 10% 18% 14% 12% 8% 7% 69 7 B 9 10 11 Totals 6% Print Done 100% 100% 100% 100% have been rounded to the nearest whole percent o simplity calculations will Net cash flows No terminal value Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $45,600, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable life remaining. The new machine that is being considered costs $75,600 and requires $4,300 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $54,300 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation and interest) associated with the new and the old machines for the next 5 years are given in the table (Table contains the applicable MACRS depreciation percentages.) Note: The new machine will have no terminal value at the end of 5 years. a. Calculate the initial investment associated with replacement of the old machine by the new one. b. Determine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a timeline the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision 0 Year New machine Expenses (excluding depreciation and interest) $720,800 720,800 720,800 720,800 720,800 Revenue $750,700 750,700 750,700 750,700 750,700 2 3 4 Old machine Expenses (excluding depreciation and interest) $659,000 659,000 659,000 659,000 659,000 Revenue $674,000 676,000 680,000 678,000 674,000 5 0 1 N Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 45% 32% 25% 18% 3 15% 19% 14% 18% 4 7% 12% 12% 12% 5 9% 12% 9% 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-vear

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

Auditing Outsourced Functions Risk Management In An Outsourced World

Authors: Mark Salamasick

1st Edition

0894137255, 9780894137259

More Books

Students also viewed these Accounting questions

Question

General Purpose of Your Speech Analyzing Your Audience

Answered: 1 week ago

Question

Ethical Speaking: Taking Responsibility for Your Speech?

Answered: 1 week ago