Question
Your company plans to produce a product for two more years and then to shut down production. You are considering replacing an old machine used
Your company plans to produce a product for two more years and then to shut down production. You are considering replacing an old machine used in production with a new machine. The Old machine originally cost $ 470 and was bought 3 years ago (i.e. it has depreciated for three years). It could be sold today for $ 258 or sold in two years for $ 187 . The New machine would cost $ 854 and could be sold in two years for $ 394. The new machine is more efficient than the old machine and would reduce waste, and therefore the cost of materials, by $188 per year. Due to the lower waste, we could also have a one-time reduction in inventory of $21. The firm's tax rate is 21%. Both machines are in the 3 year MACRS class, with depreciation amounts of 15%, 45%, 33% and 7%. What are the Operating Cash Flows in the first year (Year 1) with the new machine?
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