Calculate the net cash out flow

Reference no: EM132969228

Question: BB Ltd currently processes seafood with a unit it purchased five years ago. The unit, which originally cost $800,000, currently has a book value of $400,000. Management is considering the option of replacing the existing unit with a brand new, high speed unit. The new unit will cost $800,000. Shipping and Installation will cost a further $50,000. Management has forecasted an initial increase in net working capital of $50,000. The additional net working capital will be recovered in full at the end of the project's life. The new unit will be depreciated on a straight-line basis over 5 years to a zero balance. The existing unit is being depreciated at a rate of $50,000 per year.

Company tax rate is 30%. his existing unit can be sold for $450,000 today. Calculate the net cash out flow in year 0 for the replacement decision.

Reference no: EM132969228

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