Question
PDF corp needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for $50,000 nine years ago and
PDF corp needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for $50,000 nine years ago and has a current book value on $5000. (the old machine is being depreciated on a straight line basis over a ten year useful life) The new lathe costs $100,000. It will cost the company $10,000 to get the new lathe to the factory and get it installed. The old machine will be sold as scrap metal for $2000. The new machine is also being depreciated on a straight line basis over ten years.Sales are expected to increase by $8000 per year while operating expenses are expected to decrease by $12,000 per year. PDF's marginal tax rate is 40%. Additional working capital of $3000 is required to maintain the new machine and higher sales level. The new lathe is expected to be sold for $5000 at the end of th eproject's 10 year life, What is the projects terminal cash flow? a) $8000 b) $6000 c) $5000 d) $3000
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