The Zhang Equipment Company’s machine was purchased 5 years ago for $55,000. It had an expected life of 10 years when it was bought, and its remaining depreciation is $5,500 per year for each year of its remaining life. As older machine are robust and useful machine, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency, digital-controlled machine can be purchased for $120,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $30,000 per year. Sales revenue will not be affected. At the end of its useful life, the highefficiency machine is estimated to be sold at $10,000. MACRS depreciation will be used, and the machine will be depreciated over its 5-year property class life. The old machine can be sold today for $35,000. The firm’s tax rate is 25%, and the appropriate cost of capital is 13%. - What are the incremental cash flows that will occur at the end of Years 1 through 5?
The Zhang Equipment Company’s machine was purchased 5 years ago for $55,000. It had an expected life of 10 years when it was bought, and its remaining
A new high-efficiency, digital-controlled machine can be purchased for $120,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $30,000 per year. Sales revenue will not be affected. At the end of its useful life, the highefficiency machine is estimated to be sold at $10,000. MACRS depreciation will be used, and the machine will be depreciated over its 5-year property class life.
The old machine can be sold today for $35,000. The firm’s tax rate is 25%, and the appropriate cost of capital is 13%.
- What are the incremental cash flows that will occur at the end of Years 1 through 5?
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