Question
You are thinking about replacing a hair drying machine in your barber shop. The old machine generates revenue of $40,000 per year and costs $15,000
You are thinking about replacing a hair drying machine in your barber shop. The old machine generates revenue of $40,000 per year and costs $15,000 per year to operate. Three years ago it cost $10,000 and it is being depreciated over four years using straight-line depreciation. The new machine costs $15,000 and will also be depreciated over four years. Revenues will increase to $50,000 and costs will rise to $20,000. Assuming a 40% tax rate, what is the annual cash flow in the first year of operating the new machine?
$5,500
$6,250
$4,500
$3,750
$3,500
Please show work.
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