Question
The Flemingo Inc. purchased a special machine 1 year ago at a cost of $12,000. At the time of purchase the machine was estimated to
The Flemingo Inc. purchased a special machine 1 year ago at a cost of $12,000. At the time of purchase the machine was estimated to have a useful life of 6 years and no salvage value. The annual cash operating cost is approximately $20,000. A new machine has just come on the market which will do the same job but with an annual cash operating cost of only $17,000. This new machine costs $21,000 and has an estimated life of 5 years with zero salvage value. The old machine can be sold for $10,000 to a scrap dealer. Straight line depreciation is used, and the companys income tax rate is 40 percent.
Assuming a cost of capital of 8 percent after taxes,
(a) loss or gain on sale of old machine (is the answer 0)
(b) The initial investment (is the answer 11,000)
(c) the incremental cash inflow after tax (2,680?)
(d) the NPV of the new investment (-300?)
(e) IRR on the new investment (6.96?)
Can help to check whether this answer is correct and with workings?
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