The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new tax legislati

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The Dauten Toy Corporation currently uses an injection molding
machine that was purchased prior to the new tax legislation. This
machine is being depreciated on a straight-line basis, and it has 6
years of remaining life. Its current book value is $2,100, and it
can be sold for $2,500 at this time. Thus, the annual depreciation
expense is $2,100/6 = $350 per year. If the old machine is not
replaced, it can be sold for $500 at the end of its useful
life.
Dauten is offered a replacement machine which has a cost of
$8,000, an estimated useful life of 6 years, and an estimated
salvage value of $800. The replacement machine is eligible for 100%
bonus depreciation at the time of purchase. The replacement machine
would permit an output expansion, so sales would rise by $1,000 per
year; even so, the new machine's much greater efficiency would
cause operating expenses to decline by $1,000 per year. The new
machine would require that inventories be increased by $2,500, but
accounts payable would simultaneously increase by $800. Dauten's
marginal federal-plus-state tax rate is 25%, and its WACC is
11%.
What is the NPV of the incremental cash flow stream? Negative
value, if any, should be indicated by a minus sign. Round your
answer to the nearest cent.
$
Should the company replace the old machine?
-Select-YesNo