The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $70,000. It had an expected life of
Posted: Fri Jul 01, 2022 7:46 am
The Everly Equipment Company's flange-lipping machine waspurchased 5 years ago for $70,000. It had an expected life of 10years when it was bought and its remaining depreciation is $7,000per year for each year of its remaining life. As olderflange-lippers are robust and useful machines, this one can be soldfor $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can bepurchased for $130,000, including installation costs. During its5-year life, it will reduce cash operating expenses by $45,000 peryear, although it will not affect sales. At the end of its usefullife, the high-efficiency machine is estimated to be worthless.MACRS depreciation will be used, and the machine will bedepreciated over its 3-year class life rather than its 5-yeareconomic life, so the applicable depreciation rates are 33.33%,44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $50,000. The firm's taxrate is 35%, and the appropriate cost of capital is 13%.
If the new flange-lipper is purchased, what is the amount of theinitial cash flow at Year 0? Round your answer to the nearestdollar. Cash outflow, if any, should be indicated by a minussign.
$
What are the incremental net cash flows that will occur at theend of Years 1 through 5? Do not round intermediate calculations.Round your answers to the nearest dollar. Cash outflows, if any,should be indicated by a minus sign.
What is the NPV of this project? Do not round intermediatecalculations. Round your answer to the nearest whole dollar.Negative value, if any, should be indicated by a minus sign.
$
Should Everly replace the flange-lipper?
A new high-efficiency digital-controlled flange-lipper can bepurchased for $130,000, including installation costs. During its5-year life, it will reduce cash operating expenses by $45,000 peryear, although it will not affect sales. At the end of its usefullife, the high-efficiency machine is estimated to be worthless.MACRS depreciation will be used, and the machine will bedepreciated over its 3-year class life rather than its 5-yeareconomic life, so the applicable depreciation rates are 33.33%,44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $50,000. The firm's taxrate is 35%, and the appropriate cost of capital is 13%.
If the new flange-lipper is purchased, what is the amount of theinitial cash flow at Year 0? Round your answer to the nearestdollar. Cash outflow, if any, should be indicated by a minussign.
$
What are the incremental net cash flows that will occur at theend of Years 1 through 5? Do not round intermediate calculations.Round your answers to the nearest dollar. Cash outflows, if any,should be indicated by a minus sign.
What is the NPV of this project? Do not round intermediatecalculations. Round your answer to the nearest whole dollar.Negative value, if any, should be indicated by a minus sign.
$
Should Everly replace the flange-lipper?