A $70,000 machine with a 9-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $83,000, with a 10-year class life. The new machine will not increase sales, but will decrease operating costs by $5,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
A $70,000 machine with a 9-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $83,000, with a 10-year class life. The new machine will not increase sales, but will decrease operating costs by $5,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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![A $70,000 machine with a 9-year class life was purchased 2 years ago. The machine
will now be sold for $50,000 and replaced with a new machine costing $83,000, with
a 10-year class life. The new machine will not increase sales, but will decrease
operating costs by $5,000 per year. Simplified straight line depreciation is employed
for both machines, and the marginal corporate tax rate is 34 percent. What is the
incremental annual cash flow associated with the project?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F35d0381a-493f-47c7-8efb-978573d5181b%2F54a07d24-87ab-4a69-b798-0b323e7dcae5%2Fdprnk8r_processed.png&w=3840&q=75)
Transcribed Image Text:A $70,000 machine with a 9-year class life was purchased 2 years ago. The machine
will now be sold for $50,000 and replaced with a new machine costing $83,000, with
a 10-year class life. The new machine will not increase sales, but will decrease
operating costs by $5,000 per year. Simplified straight line depreciation is employed
for both machines, and the marginal corporate tax rate is 34 percent. What is the
incremental annual cash flow associated with the project?
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