Question
Radeon Inc. is purchasing a new rivet machine to replace an existing one. The new machine costs RM8,000 and will require an additional cost of
Radeon Inc. is purchasing a new rivet machine to replace an existing one. The new machine costs RM8,000 and will require an additional cost of RM1,000 for modification and training. It will be depreciated using simplified straight line depreciation over 5 years. The new machine operates much faster than the old machine and with better quality. Consequently, sales are expected to increase by RM2,100 per year for the next 5 years. While it is faster, it is fully automated and will result in increased electricity costs for the firm by RM700 per year. It will, however, save about RM850 per year in labor costs. The old machine is 20 years old and has already been fully depreciated. If the firms tax rate is 28%, compute the after tax incremental cash flows for the new machine for years 1 through 5
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