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Rick is considering replacing its copying machine old new cost when new 30000 50000 age 5 years 0 depreciation method straight-line over 10 years to
Rick is considering replacing its copying machine
old | new | |
cost when new | 30000 | 50000 |
age | 5 years | 0 |
depreciation method | straight-line over 10 years to zero | straight-line over 10 years to zero |
salvage 5 years from today | 0 | 25000 |
net working capital (t=0 only) returned at end of project | 2000 | 5000 |
Market value today | 18000 | 50000 |
remaining life | 5 years | 5 years |
The new machine is expected to increase revenue by 50,000 per year and operating expenses by 10,000 per year. The tax rate is 40 percent, and the cost of capital is 15 percent.
A. What is the initial investment for this project?
B. What is the incremental cash flow per year?
C. What is the difference in ending cash flow?
D. Should they replace the machine?
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