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PLEASE SHOW WORK 6i Steps ad approach used by me in class. (20 pts) Tremont Designs is considering replacing one of its machines. The current
PLEASE SHOW WORK
6i Steps ad approach used by me in class. (20 pts) Tremont Designs is considering replacing one of its machines. The current equipment was purchased 5 years ago, and its installed cost was $225,000. At that time it was estimated to have a useful life of 10 years. The machine is being depreciated using the simplified straight-line method and its market value todayis $10,000. Six full-time machine operators are required to operate the machine. Each is paid a $40,000 annual salary. The existing machine creates about $20,000 worth of defects per year, and costs $5,000 per year to maintain. The proposed machine costs $390,000, requires the company to spend $30,000 for shipping and installation. If purchased, it will be depreciated to a zero book balance using straight line depreciation over its 5-year expected useful life. Though the firm does not expect revenues to increase with the new machine, the newer model is more efficient and less labor intensive. As a result only three machine operators are required, the cost of defects would drop to $8,000 per year, and maintenance would now reach $12,000 annually. Green expects to the proposed new machine to have a $64,000 market value at the end this time. The firm's tota marginal tax rate-both state and federal-is 21%. With relation to the cash flows associated with this replacement, what is/are the: a. Initial outlay associated with this project? Annual after-tax cash flows associated with this project (OCFs), for years 1 through 4? c. Total Terminal year cash flow in year 5Step by Step Solution
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