Estimated incremental revenues

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Reference no: EM132663272

X Company is considering a new processor that costs $150,000. Shipping and setup costs for the new processor are estimated to be $15,000. X's working capital requirement is expected to increase by $17,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processor's useful life is expected to be 5 years and its salvage value at that point is estimated to be $60,000. The new processor is being depreciated using a 5-yearACRS life. Assume a tax rate of 35% and a cost of capital of 12%.

Problem 1: Estimated incremental revenues and incremental cash operating expenses for the new processor before tax for each year are shown in the table below

Year	Incremental Revenue	Incremental Cash Operating Expenses	ACRS Depr. %
1	$87.000	$23.000	15
2	$82.000	$25.000	22
3	$93.000	$30.000	21
4	$87.000	523.000	21
5	$88.030	$29.000	21

Reference no: EM132663272

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