Five years ago, the Mori Foods Company acquired a bean processing machine. The m
ID: 2699440 • Letter: F
Question
Five years ago, the Mori Foods Company acquired a bean processing machine. The
machine cost $30,000 and is being depreciated using the straight-line method over a
10-year period to an estimated salvage value of $0. A new, improved processor is
now available, and the firm is considering making a switch. The firm%u2019s marginal tax
rate is 40 percent. What are the after-tax cash flow effects of selling the old processing
unit if it can be sold for the following prices?
a. $15,000
b. $5,000
c. $26,000
d. $32,000
Explanation / Answer
What are the after-tax cash flow effects of selling the old processing
unit if it can be sold for the following prices?
a. $15,000
After tax cash flow = 15000 - 40%*(15000-15000) = $15000
b. $5,000
After tax cash flow = 5000 - 40%*(5000-15000) = $9000
c. $26,000
After tax cash flow = 26000 - 40%*(26000-15000) = $21600
d. $32,000
After tax cash flow = 32000 - 40%*(32000-15000) = $25200
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