Question
The Goodyear Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment cost $10 million and the company
The Goodyear Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment cost $10 million and the company expects to sell its old equipment for $1 million which has fully depreciated. The attraction of the new machinery is that it is expected to cut manufacturing cost from their current level of $8 as welt to $4. however, the production level will remain the same at 800.000 units. The company plans to utilize this machine for five years since it will become obsolete after that period. This new machine will be depreciated using straight-line basis. If the tax rate is 35% and its cost of capital is 20%. Estimate.
- Initial investment.
- Operating Cash flow.
- Terminal Cash flow
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