he Everly Equipment Company\'s flange-lipping machine was purchased 5 years ago
ID: 2769561 • Letter: H
Question
he Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $90,000. It had an expected life of 10 years when it was bought and is being depreciated by the straight-line method by $9,000 per year. As the older flange-lippers are robust and useful machines, it can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $55,000. The firm's tax rate is 35%, and the appropriate WACC is 15%. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest whole dollar. $ -98500 What are the incremental net cash flows that will occur at the end of Years 1 through 5? Round your answers to the nearest whole dollar. CF1 $ CF2 $ CF3 $ CF4 $ CF5 $ What is the NPV of this project? Round your answer to the nearest whole dollar.
Explanation / Answer
If the old machine is sold now the the after tax cashflows would be as follows
= (55000) - (55000-45000) *.35
=51500
$45000 is the book value after five years for old machine
Hence the cashfllow for the year 0 = 51500 +-150000 =-98500
0 1 2 3 4 5 Decrease inc ost epr year 45000 45000 45000 45000 45000 Depreciation 33.33% 44.45% 14.81% 7.41% Deprecition 49995 66675 22215 11115 Old Dep 9000 9000 9000 9000 9000 Incremental depreciation 40995 57675 13215 2115 -9000 Increental salavge value -13000 PBT 4005.00 -12675.00 31785.00 42885.00 41000.00 Tax 1401.75 11124.75 15009.75 14350.00 PAT 2603.25 -12675.00 20660.25 27875.25 26650.00 Cashflows(PAT +Dep) 52598.25 54000.00 42875.25 38990.25 26650.00 Inevstments -98500 NPV 45,046.18 -98500 52598.25 54000.00 42875.25 38990.25 26650.00Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.