Question
Your firm needs a computerized machine tool lathe that costs $75,000, requires $10,000 in installation, $10,000 in freight charges, and another $14,000 in maintenance for
Your firm needs a computerized machine tool lathe that costs $75,000, requires $10,000 in installation, $10,000 in freight charges, and another $14,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category (depreciation of 33.33%, 44.45%, and 14.81% in years 1, 2, and 3 respectively). Assume a tax rate of 30 percent and a discount rate of 12 percent. If the lathe can be sold for $10,000 at the end of year 3, what is the after-tax cash flow from selling it?
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