The expected incremental after tax cash flows

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Reference no: EM131179006

Foster Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines (to replace an existing manual system).

The outlay required is $3,500,000.

The NC equipment will last 5 years with no expected salvage value.

The expected incremental after-tax cash flows (cash flows of the NC equipment minus cash flows of the old equipment) associated with the project follow:

Year	Cash Benefits	Cash Expenses
1	$3,900,000	$3,000,000
2	3,900,000	3,000,000
3	3,900,000	3,000,000
4	3,900,000	3,000,000
5	3,900,000	3,000,000

Foster has a cost of capital equal to 10%. The above cash flows are expressed without any consideration of inflation.

Reference no: EM131179006

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