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The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine was
The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine was purchased prior to
the TCJA, has a book value of $ and a remaining useful life of years. The firm does not expect to realize any return from scrapping the old machine in years,
but it can sell it now to another firm in the industry for $ The old machine is being depreciated by $ per year, using the straightline method.
The new machine has a purchase price of $ an estimated useful life of years, and an estimated salvage value of $ The new machine is eligible for
bonus depreciation at the time of purchase. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective
bottles. In total, an annual savings before taxes of $ will be realized if the new machine is installed. The company's marginal tax rate is and it has a
WACC.
a What initial cash outlay is required for the new machine after bonus depreciation is considered? Cash outflow should be indicated by a minus sign. Round your answer to
the nearest dollar.
$
b Calculate the change in the annual depreciation expense if the replacement is made. Negative change values, if any, should be indicated by a minus sign. Round your
answers to the nearest dollar.
c What are the incremental cash flows in Years through Round your answers to the nearest dollar.
Year
Year
Year
Year
Year
$
$
$
$
$
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