Question
Wizard Productions Limited (WPL) is considering replacing its old fully depreciated forklift with a new model costing $850,000. The consultants estimate the old forklift will
Wizard Productions Limited (WPL) is considering replacing its old fully depreciated forklift with a new model costing $850,000. The consultants estimate the old forklift will be able to be sold for a scrap value of $107,000 and the new forklift will have a life of 5 years. Due to the efficiency of the new forklift it will increase the amount of space WPL has for inventory and increase stock by $620,000 which will result in increased sales of $170,000 as well as increased administration expenses of $250,000. The new forklift will reduce its returned sales and rejected products; this will result in savings of $64,000 a year. Due to the efficiency of the forklift wage costs for storage and handling/packing will fall by $176,000 a year. Depreciation allowance for tax is 9 years straight line for the forklift. What is the yearly incremental operating cash flow to the nearest dollar for this project given the company tax rate is 30%?
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