Question
Sideshow Bobs Circus is considering replacing its current Whack-A-Mole machines with a new and improved model. The old machines cost $800,000 6 years ago and
Sideshow Bobs Circus is considering replacing its current Whack-A-Mole machines with a new and improved model. The old machines cost $800,000 6 years ago and is being depreciated to zero using 10-year straight-line depreciation. These old Whack-A-Mole machines has a current salvage value of $250,000. The new machines, The Wacky Whack-A-Mole, cost $1,100,000 today and would be depreciated (expensed) immediately at t=0 under 100% Bonus Depreciation and would have a 5-year useful life. Revenues would rise $50,000 annually and operating costs would decrease $150,000 annually if the old machines are replaced. The companys marginal tax rate is 25%. Refer to Sideshow Bobs Circus, what is the year 2 operating cash flow for this potential replacement project if Sideshow Bobs tax rate is 25%?
Group of answer choices
$200,000
$150,000
$130,000
$170,000
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