Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 $5,000 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 $55,000. The firm's tax rate is 25%. The appropriate WACC is 9%.

  1. If the new machine is purchased, what is the amount of the initial cash flow at Year 0 after bonus depreciation is considered? Cash outflow should be indicated by a minus sign. Round your answer to the nearest dollar. $
  2. 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
    $ $ $ $ $
  3. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest cent. $ Should Darlington replace the old machine?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_step_2

Step: 3

blur-text-image_step3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

=+ If a net cost is being imposed, which type of cost is involved?

Answered: 1 week ago