Show the cash flows for each period

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Reference no: EM131500928

A) Co Z is considering the purchase of a new machine. The machine will cost $10,000 and will last three years, at which time it will be sold for $1,200. The machine is in the three-year MACRS class (rates .33, .45, .15, .07) and the firm has a 40% tax rate. The machine will require an increase in working capital of $800 and will increase revenues by $4,000 each year. Show the cash flows for each period.

b) You are considering the replacement of an old machine that has a current book value of $7,000 and a market value of $9,000. The old machine is being depreciated to a salvage value of $2,000 at a rate of $1,000 per year over the next five years. The new machine will cost $100,000 and will last five years, at which time it can be sold for $15,000. It is in the three-year MACRS class (rates are 33%, 45%, 15%, and 7%). The machine will increase sales by $5,000, and operating expenses will fall $20,000 per year. The new machine will allow the firm to decrease inventory by $2,000. The firm’s tax rate is 40%. Show the cash flows for each period.

Reference no: EM131500928

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