Question
The Darlington Equipment Company purchased a machine 5 years ago, prior to the TCJA, at a cost of $80,000. The machine had an expected life
The Darlington Equipment Company purchased a machine 5 years ago, prior to the TCJA, at a cost of $80,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,000 per year. If the machine is not replaced, it can be sold for $15,000 at the end of its useful life.
A new machine can be purchased for $170,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $55,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. The new machine is eligible for 100% bonus depreciation at the time of purchase.
The old machine can be sold today for $50,000. The firm's tax rate is 25%. The appropriate WACC is 9%.
What are the incremental cash flows that will occur at the end of Years 1 through 5? Round your answers to the nearest dollar.
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
$ | $ | $ | $ | $ |
What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest cent. $
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started