Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The old machine has a book value of $800,000 and a remaining useful life of 5 years. The current machine would be worn out

The old machine has a book value of $800,000 and a remaining useful life of 5 years. The current machine would be worn out an 

The old machine has a book value of $800,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $265,000. The old machine is being depreciated by $160,000 per year for each year of its remaining life. The new machine has a purchase price of $1,180,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00 %, 19.20 %, 11.52 %, 11.52 %, and 5.76 %. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $255,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 16%. a. What is the initial net cash flow if the new machine is purchased and the old one is replaced? Round your answer to the nearest dollar. b. Calculate the annual depreciation allowances for both machines, and compute the change in the annual depreciation expense if the replacement is made. Do not round intermediate calculations. Round your answers to the nearest dollar. Depreciation Allowance, New Depreciation Allowance, Old Change in Depreciation Year 1 2 3 4 5 $ $ $ CF3 CF4 CFS $ c. What are the incremental net cash flows Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest dollar. CF1 CF H d. Should the firm purchase the new machine? -Select- :

Step by Step Solution

3.43 Rating (150 Votes )

There are 3 Steps involved in it

Step: 1

X File Com Paste 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 Rea Hom... 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

Intermediate Financial Management

Authors: Eugene F. Brigham, Phillip R. Daves

12th edition

1285850033, 978-1305480698, 1305480694, 978-0357688236, 978-1285850030

More Books

Students also viewed these Finance questions

Question

f. How do you apply for the position?

Answered: 1 week ago

Question

mple 10. Determine d dx S 0 t dt.

Answered: 1 week ago