Reference no: EM133158135

Question - Mark's Manufacturing Company is currently using three machines that it bought seven years ago to manufacture its product. Each machine produces 10,000 units annually. Each machine originally cost $25,500 and has an estimated useful life of 17 years with no salvage value.

The new assistant manager of Mark's Manufacturing Company suggests that the company replace the three old machines with two technically superior machines for $22,500 each. Each new machine would produce 15,000 units annually and would have an estimated useful life of 10 years with no salvage value.

The new assistant manager points out that the cost of maintaining the new machines would be much lower. Each old machine costs $2,500 per year to maintain; each new machine would cost only $1,500 a year to maintain.

Required - Compute the increase in after-tax annual net cash inflow that would result from replacing the old machines; use straight-line depreciation and an assumed tax rate of 40%.