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Initial cash flows at the time of replacement

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POM Bakery is considering replacement of a custard injecting machine with a new high-speed injector, which can fill twice as many cakes per hour as the old machine. The existing injection machine was purchased 2 years ago for $4M. It could be sold today for $2M and its expected salvage value at the end of its life is $0.5M. The injectors are in Class 43 with a? 30% depreciation rate. The new custard injector costs $4M. The new machine will be sold for $1.5M at the end of 3 years. The new machine will increase EBITDA by $700,000 per year. The company's tax rate is 40% and its cost of capital is 12%. The new machine will not affect working capital.

What are the initial cash flows at the time of replacement? (Round your answer to the nearest dollar.)

Reference no: EM133072716

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