Question
Your firm purchased the current machine it uses to manufacture widgets 2 years ago. The machine cost $635,000 at that time. Today the machine is
Your firm purchased the current machine it uses to manufacture widgets 2 years ago. The machine cost $635,000 at that time. Today the machine is worth $244,000. The machine could be operated for another 4 years. 4 years from now the old machine will be worth $51,000. The old machine machine generates revenues of $735,000 per year. The old machine has operating costs of $418,000 per year. The firm has a current investment in operating net working capital of $63,000.
The firm is thinking about buying a new machine to replace the old machine. The new machine will cost $1,078,000. The new machine can be operated of 4 years. 4 years from now the new machine will have a salvage value of $177,000. The new machine will generate revenues of $950,000 per year. The new machine will have operating costs of $476,000. The new machine requires an investment in operating net working capital of $99,000.
The tax rate is 25.5%. The CCA rate is 28%. The required rate of return is 12.2%.
What is the incremental capital cost?
Your answer should be correct to two decimal places. Note if your answer is 105,200 it must be shown as 105,200.00
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