Reference no: EM132568030

Question 1:  ABC Inc. wishes to buy new machinery that would cost $160,000, but it would lead to increased output, higher sales, and higher costs. Moreover, the firm would receive $100,000 after taxes for the old machine. The new machine would result in sales of $120,000 per year versus old sales of $70,000, and the new costs would be $40,000 versus old costs of $20,000. Finally, the old machine was being depreciated at the rate of $10,000 per year, but the new machine would have $30,000 of annual depreciation. The marginal tax rate is 25 percent and WACC is 10 percent. Based on these figures, and assuming the new and old machines both have a life of four years, find the incremental cash flows.