Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Davten Toy Corporation currently uses an injection molding machine that was purchased pnor to the new tax legislation, This machine is being depreciated an

image text in transcribed
The Davten Toy Corporation currently uses an injection molding machine that was purchased pnor to the new tax legislation, This machine is being depreciated an a straight-line bosin, and it has 6 yeas di remaineng life. Its current book value is $2,100, and it can be sola for $2,500 at this time. Thus, the annuat depreciation expense is $2,100/6=$350 per year. If the old machient is not replsod, 4 can be sold for $500 at the end of its useful life. Dovten is ofered a replacement machine which has a cost of 510,000 , an estimated useful Me of 6 years, and an estimated salvage value of 5800 . The rephicemene machine is eligible for 100 . bonuk sepreciation at the time of purchave. The rephcement machine would permit an output expansian, so sales would rise by $1,000 per year; even so, the oew maduine's moch grester efforency would ciuse operating expenses to decine by 51,500 per year. The new machine would require that inveritories be incressed by 32,500 , but accounts payable would simultaneously inorase by s\$00. Dauter's margnal fedenal phab- sate tax rate is 25%, and ats wacc is 11%. What is the Nov of the maremental cadh flow stream? Negatire value, if any, should be iedicated by a minus wign, Round your answar to the nearest oent. Shald the company teplace the did machere

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: 3

blur-text-image

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

Advanced Bond Portfolio Management

Authors: Frank J. Fabozzi, Lionel Martellini, Philippe Priaulet

1st Edition

0471678902, 9780471678908

More Books

Students also viewed these Finance questions