The Bigbee Botting Compary is contemplating the replacement of one of its bottling machines with a newer and more etficient one. The old machine was purchased prioe to the rcia, has a book value of $550,000, and a remsining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 vears, but it can sell it now to anather firm in the industry for $250,000. The old machine is being depreciated by $110,000 per year, using the straight-line method. The new machine has a purchase price of $1,100,060, an estimated useful Me of 5 years, and an estimated saivage value of $140,000. The new mactine is eligible tor 1005 benus depreciation at the time of purchase. It is expected to economize on electric power usage, laboc, and repair costs, as well as to reduce the number of detective botties. in totai, an anmal savings before taxes of $235,000 wil be realized if the new machine is installed. The company's marginal tax rate is 25%, and is has a 12% Wace. a. What inatial cash outlsy is required for the new machine aher banus depreciation is censidered? Cash outhlow should be indicated by a minus sign. Round your answer to the nearest dallar 3 b. Calculate the change in the annual depreciation expense if the replocement is made. Negative change values, if any, ahould be indicated by a minus sign. Round your answers to the nearest dollar: d. Should the firm purchase the new machine? e. In geberat how whuld cach of the following factors affect the investment declsion, and haw should each be treated? 1. The expected ife of the existing machine decreases. The new machine will look than before due to the relative of the cosh flows attributable to it. should be made 2. The WACC is not constant, but is increaung as Bigbee adds more projects into its captal budget for the yeat: The NIV will due to a capital cost. The Bigbee Botting Compary is contemplating the replacement of one of its bottling machines with a newer and more etficient one. The old machine was purchased prioe to the rcia, has a book value of $550,000, and a remsining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 vears, but it can sell it now to anather firm in the industry for $250,000. The old machine is being depreciated by $110,000 per year, using the straight-line method. The new machine has a purchase price of $1,100,060, an estimated useful Me of 5 years, and an estimated saivage value of $140,000. The new mactine is eligible tor 1005 benus depreciation at the time of purchase. It is expected to economize on electric power usage, laboc, and repair costs, as well as to reduce the number of detective botties. in totai, an anmal savings before taxes of $235,000 wil be realized if the new machine is installed. The company's marginal tax rate is 25%, and is has a 12% Wace. a. What inatial cash outlsy is required for the new machine aher banus depreciation is censidered? Cash outhlow should be indicated by a minus sign. Round your answer to the nearest dallar 3 b. Calculate the change in the annual depreciation expense if the replocement is made. Negative change values, if any, ahould be indicated by a minus sign. Round your answers to the nearest dollar: d. Should the firm purchase the new machine? e. In geberat how whuld cach of the following factors affect the investment declsion, and haw should each be treated? 1. The expected ife of the existing machine decreases. The new machine will look than before due to the relative of the cosh flows attributable to it. should be made 2. The WACC is not constant, but is increaung as Bigbee adds more projects into its captal budget for the yeat: The NIV will due to a capital cost
