Problem 11-16

tection P11-16 Relevant cash flows: No terminal value Central Laundry and Cleaners is consider- ing replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $50,000, 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 S76,000 and requires $4,000 in installation costs. The new machine would be depre- ciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $55,000 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation