t cost of capital in order for the firm to accept the investment. 30) Kwickee Ma

Question

t cost of capital in order for the firm to accept the investment. 30) Kwickee Mart is considering replacing it's current to zero usin machine cost $10,000 three years ago and is being This old slurpee machine has a current salvage val $16,000 today. Slurpee Machine with a new and improved model.The old depreciated to zero using 5-year straight-line depreciation. Super Slurpee, costs ue of $3,000. The new machine, The Super Slurpee, costs sinialcash flow for this potential replacement project if Kwickee Mar' A. -$13,000 B. -$12,700 C. -$16,000 D. -$13,300 rae is 0/

Explanation / Answer

Correct Option is B) -$12700

Initital Cash Flow: Salvage Value of old machine 3000 Book Value of Old Machine 10000-(10000/5)*3 4000 Loss on disposal of old machine 4000-3000 1000 Tax shield on loss 1000*30% 300 Cost of new machine -16000 Initial Cash Flow 3000+300-16000 -12700

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