Question
Steve Cox, the hapless manager of Steve's Barbecue is considering replacing his old barbecue with a newer and more efficient model. The old barbecue was
Steve Cox, the hapless manager of Steve's Barbecue is considering replacing his old barbecue with a newer and more efficient model. The old barbecue was purchased for $100,000 just two years ago. It has a salvage value of $50,000 now and $10,000 after the four remaining years that Steve plans to run the business. Steve is considering buying a new barbecue at a cost of $300,000. The cost would be buffered by sale of the old barbecue. The new barbecue has an estimated salvage value of $100,000 after four years of use. It is very efficient and allows a decrease in the average inventory of charcoal of $20,000. It also will result in cost savings of $40,000 per year.
Assume the marginal tax rate and the capital gains tax rate is 30%. Both machines are subject to the 3-year IRS schedule. Assume the schedule is 30.00%, 40.00%, 20.00%, and 10.00% in years 1-4, respectively. Because Steve realizes that he is financially incompetent, he asks that you analyze this decision. Please set up the cash flow totals by year. Please format these totals in bold font. Do not calculate the NPV or IRR. For your answer, copy the table below or create your own.
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