Reference no: EM132472670

Patriot Industries Inc. is evaluating whether to sell an old machine and purchase a new machine:

	Old Machine	New Machine
Acquisition cost	$180,000	$200,000
Useful life	5 years	3 years
Remaining useful life	3 years	3 years
Current trade-in value	$80,000	NA
Salvage after use	$5,000	$15,000
Annual operating costs	$55,000	$15,000
Defect rate per year	3%	1%

Annual production for both machines is 250,000 units. Rework costs are $1.50 per unit.

Question 1: How would net cash flow from the acquisition of the new machine change if: Cash flow would: The salvage value of the new machine is $5,000 (instead of $15,000)

a. Be Higher

b. Be Lower

c. Not Change

Question 2: How would net cash flow from the acquisition of the new machine change if: Cash flow would: The annual operating cost of the old machine is $45,000 (instead of $55,000)

a. Be Higher

b. Be Lower

c. Not Change