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Punto.com which has a marginal tax rate of 40% is considering replacing its existing machine. You are given the following facts: The new machine
Punto.com which has a marginal tax rate of 40% is considering replacing its existing machine. You are given the following facts: The new machine costs $1,000,000 and would replace the existing machine. The new machine would be depreciated in straight line at the rate of $75,000 per year and would be sold for $200,000 after 10 years. The new machine would increase before-tax annual sales by $250,000. The new machine would also increase before-tax annual operating costs by $125,000. These changes in sales and costs would occur at year-end during the 10 years that the new machine would be operating. The old machine was acquired 6 years ago for $750,000 and it has a current market value of $500,000. The old machine could last for another 10 years, and after 10 years would be worth $70,000. The current book value of the old machine is $500,000 and it would be depreciated in straight line at the rate of $50,000 per year. Calculate the incremental FCF in year 10 of buying the new machine.
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