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 $818 and was bought Three (3) years ago (i.e. it has depreciated for three years). It could be sold today for $367 or sold in two years for $121. The New machine would cost $703 and could be sold in two years for $231. The new machine is more efficient than the old machine and would reduce waste, and therefore the cost of materials, by $300 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 43%. Both machines are in the 4 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?
Please provide calculation steps.
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