Question
Your company is considering the purchase of a new machine. The original cost of the old machine was $80000; it is now five years old,
Your company is considering the purchase of a new machine. The original cost of the old machine was $80000; it is now five years old, and it has a current market value of $30000. The old machine is being depreciated over a 10-year life towards a zero estimated salvage value on a straight-line basis, resulting in a current book value of $40000 and an annual depreciation expense of $8000. The old machine can be used for six more years but has no market value after its depreciable life is over. management is contemplating the purchase of a new machine whose cost is $90000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new machine are $15000 a year over its full macrs depreciable life. depreciation is computed using MACRA over a five year life (depreciation of 20% in year 1), and the cost of capital is 9 percent. Assume a 30 percent tax rate. what will the year 1 (year 1 only!) after-tax operating cash flow for this project be?
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