Calculating 'cash flows over the life' Michael's Patisserie Company (MICH) is proposing to replace its old baking equipment with new equipment. Baker's Delight will purchase the old baking equipment immediately for $87,000. The new baking equipment costs $250,000 immediately. The new baking equipment is expected to increase MICH's total yearly sales by $50,000 to $425,000. MICH will sell new shares to partially fund the purchase of the new baking equipment, raising a total of $90,000. The new baking equipment is more efficient than the old equipment and is expected to reduce MICH's annual operating costs to $200,000 from $280,000. According to the tax office, the new baking equipment has an effective life of 20 years. Assume the company tax rate is 30%. The old baking equipment incurs depreciation of $12,000 per annum, and has 20 years until it is fully depreciated. For internal management reporting, the new baking equipment will be depreciated using a 12-year useful life. What are the 'cash flows over the life'?
Calculating 'cash flows over the life' Michael's Patisserie Company (MICH) is proposing to replace its old baking equipment with new equipment. Baker's Delight will purchase the old baking equipment immediately for $87,000. The new baking equipment costs $250,000 immediately. The new baking equipment is expected to increase MICH's total yearly sales by $50,000 to $425,000. MICH will sell new shares to partially fund the purchase of the new baking equipment, raising a total of $90,000. The new baking equipment is more efficient than the old equipment and is expected to reduce MICH's annual operating costs to $200,000 from $280,000. According to the tax office, the new baking equipment has an effective life of 20 years. Assume the company tax rate is 30%. The old baking equipment incurs depreciation of $12,000 per annum, and has 20 years until it is fully
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