Calculate initial cash outflow associated with replacement

Assignment Help Financial Management

Reference no: EM132067250

Village Bakers is considering replacing an existing oven with a new, more advanced oven.

The old oven was purchased three years ago at a cost of $30,000, and this amount was being depreciated under MACRS using a 5-year recovery period. The oven has five years of usable life remaining. The old oven may currently be sold for $22,000 without incurring any removal or cleanup costs.

The new oven being considered costs $40,500, requires $1,500 in installation costs, and would be depreciated under MACRS using a 5-year recovery period.

Village Bakers pays tax at a rate of 40% on both ordinary income and capital gains. The revenues and expenses (excluding depreciation) associated with the new and the old ovens for the next five years are given in the following table.

NEW OVEN OLD OVEN YEAR Revenue Expenses (Excluding Depreciation) Revenue Expenses (Excluding Depreciation) 1 $310,000 $288,000 $270,000 $264,000 2 $310,000 $288,000 $270,000 $264,000 3 $310,000 $288,000 $270,000 $264,000 4 $310,000 $288,000 $270,000 $264,000 5 $310,000 $288,000 $270,000 $264,000

a. Calculate the initial cash outflow associated with replacement of the old oven by the new one. You may use the provided initial cash investment form. Show all work for any credit.

b. Determine the incremental operating cash flows associated with the proposed replacement decision for Years 5 and 6 ONLY. You do not need to show Years 1, 2, 3, or 4 for the replacement decision incremental operating cash flows. You may use the OCI Template form.

Reference no: EM132067250

Questions Cloud

Prepare a balance sheet presentation of the bonds payable : Payment of interest on December 31, 2011. Prepare a balance sheet presentation of the bonds payable that are outstanding at December 31, 2012

Calculate the super profit using given data : Company has average profit had been: Please calculate the super profit: information / reference can be found on Method 2-3 on the notes.

What test does the court establish for tennessee : What test does the court establish for Tennessee to determine whether a substantial step has been taken?

Contrast the modern construct for fisim with measure : Contrast the modern construct for FISIM with a measure that subtracts deposits from the financial sector’s lending to measure value added in the sector.

Calculate initial cash outflow associated with replacement : Calculate the initial cash outflow associated with replacement of the old oven by the new one. You may use the provided initial cash investment form.

Identify a feature of the current american legal system : Identify a feature of the current American legal system that appears to be more of the civil law tradition than the common law tradition.

How many units of inflatable toys do they have to sell : Suppose Sacramento wants to achieve an after-tax profit of $15,000, how many units of inflatable toys do they have to sell

What is the dividend they predict to pay out : Equity Inc. is expecting a sales increase of 8 percent and it anticipates that every item on the balance sheet will increase by 8 percent as well.

What did masters and johnson research reveal : What did Masters' and Johnson's research reveal that the sex surveys did not?

User Account

All Pages