Creed replaces the existing machine with proposed machine

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Reference no: EM132061055

Creed Construction is considering replacing a machine that it will need to complete a 3-year contract that it just signed with the city. The CFO is trying to estimate the terminal value of the replacement project, and has developed the following estimates: If Creed replaces the existing (old) machine with the proposed (new) machine, the new machine will have a salvage value of $1,400,000 at the end of the 3-year project.

If Creed replaces the existing (old) machine with the proposed (new) machine, the tax due on the sale of the new machine will be $250,000 at the end of the 3-year project.

If Creed decides not to replace the old machine with the new machine, the old machine will have a salvage value of $400,000 at the end of the 3-year project.

If Creed decides not to replace the old machine with the new machine, the tax due on the sale of the old machine will be $160,000 at the end of the 3-year project.

Replacing the old machine with the new machine will require an increase of $270,000 in net operating working capital at the initial investment stage, but this net operating working capital will no longer be needed at the end of the 3-year project. What is the end of value gai cash flow associated with the replacement project? He made up himself.

Reference no: EM132061055

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