Problem 1:

A firm considers to buy a machine in 2020. The cost of the machine which will be paid in 2020 is $ 5 000 000. The expected lifetime of the machine is 5 years. This new machine is subject to a 5- year straight line depreciation which means that the firm will be able to write off a depreciation expense of $ 1 000 000 each year for the next five years starting in 2021. The new machine also requires a maintenance cost of $ 200 000 in each year. Given this information; let us find the cash flows for 2020 and 2021 of this investment