Reference no: EM132054540

You are considering replacing the magnet that separates the iron from the non-ferrous materials your recycling company processes. The current magnet is an older generation of technology and has had breakdowns which interrupt the workflow. A new magnet has just come out on the market that is expected to be much more efficient as well as having a larger capacity for processing materials. You estimate that the new magnet will allow increased production resulting in sales rising from an estimated $650,000 to $800,000 per year. You have also estimated that the reduction in repair expense and efficiency in iron recovery will increase the operating profit margin from 20% to 25%. The new magnet costs $110,000 and will be depreciated over its three-year useful life using the MACRS schedule (33%, 45%, 15%, 7%) for 3-year assets. The new magnet is expected to be worth only $45,000 after three years. The old magnet was purchased two years ago for $140,000 and is also being depreciated using the 3-year MACRS schedule. Although the old magnet is anticipated to have a resale value of $15,000 three years from now, it can be sold today for $50,000. Your firm is in the 40% tax bracket. Calculate the incremental cash flows of this investment project for each year.

The answer is below but need help working it out:

Net Cash Flows:

Year 0 - (67,680)

Year 1 - 48,120

Year 2 - 57,880

Year 3 - 69,680