The purchase of new automated plant costing

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A firm is contemplating the purchase of new automated plant costing $240,000 to replace a n existing machine that can be sold for $ 110 ,000 today . The existing machine (which can continue to be operated for a further four years) was purchased one year ago for $100,000 and is being depreciated over its five - year life. For each year of its life t he new plant’s technology will allow the firm to reduce annual expenses by $80 ,000. Annual sales will remain at the current level of $160,000 with the new machine. Although the new machine will only be used for a four - year period, it has an eight - year depreciable life and a n assumed disposal value of zero in four years’ time. What a re the relevant cash flows for each year of the new machine’s life ? Assume the company tax rate is 30%

Reference no: EM131318841

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