Question
The Northstar considering replacing an old Crawler Bulldozer with a new Bulldozer, each with a 5-year life. The new bulldozer will cost $68,000.00 with a
The Northstar considering replacing an old Crawler Bulldozer with a new Bulldozer, each with a 5-year life. The new bulldozer will cost $68,000.00 with a salvage value of $3,000.00 and will generate a cost saving of $12,000 per year. The old bulldozer has a book value of $25,000.00 with a salvage value of $8,000.00. The current value of the old bulldozer is $10,000. Annual depreciation for the old bulldozer is $5,000.00. The tax rate applied is 40%. The rate of return required was 15% (1) If the decision is made to purchase the new bulldozer, is there a gain or loss on the disposal of the old bulldozer? (2) Operating income or Loss? (3) What is the annual cash flow? (4) What is the net present value? (5) What would be your decision?
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