Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $46,000; it is now five years old, and it has a current market value of $21,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $23,000 and an annual depreciation expense of $4,600. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $3,000 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate. What will the cash flows for this project be? (Note that the $46,000 cost of the old oven is depreciated over ten years at $4,600 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.) Year 0 2 3 5
Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $46,000; it is now five years old, and it has a current market value of $21,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $23,000 and an annual depreciation expense of $4,600. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $3,000 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate. What will the cash flows for this project be? (Note that the $46,000 cost of the old oven is depreciated over ten years at $4,600 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.) Year 0 2 3 5
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $46,000; it is now
five years old, and it has a current market value of $21,500. The old oven is being depreciated over a 10-year life toward a zero
estimated salvage value on a straight-line basis, resulting in a current book value of $23,000 and an annual depreciation
expense of $4,600. The old oven can be used for six more years but has no market value after its depreciable life is over.
Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero.
Expected before-tax cash savings from the new oven are $3,000 a year over its life, you can use bonus depreciation on the
oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate.
What will the cash flows for this project be? (Note that the $46,000 cost of the old oven is depreciated over ten years at
$4,600 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus
sign. Do not round intermediate calculations and round your answers to 2 decimal places.)
FCF
Year
0
1
2
3
4
5
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