Question
Suppose FS Inc is looking to replace an old machine with a new one. The old machine originally costs $50,000, but currently has a book
Suppose FS Inc is looking to replace an old machine with a new one. The old machine originally costs $50,000, but currently has a book value of $25,000 and a remaining depreciable life of 5 years. It would be replaced with a new machine that costs $75,000, has a depreciable life of 5 years and has annual operating costs that are $20,000 lower than with the old machine. Assuming straight-line depreciation for both the old and new machine, a tax rate of 40%, and no salvage value on either machine in 10 years, calculate the annual free cash flow used for capital budgeting purposes in Year 1 to 5.
A. 14000
B.16000
C.none
D.12000
E.18000
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