What are the initial cash flows

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The Select Comfort Company purchased a mattress-stuffing machine 5 years ago for $70,000. When purchased, it had an estimated salvage value of $5,000 at the end of seven years. Last year, the mattress machine was overhauled at a cost of $3,000. The old machine can be sold today for $20,000. A new machine can be purchased for $69,300. It has a 2-year life and is expected to reduce operating expenses by $50,000 per year. After 2 years, the new machine can be sold for $20,000. The company's cost of capital is 9% and the tax rate is 35%. Assume that depreciation is not tax deductible. Answer the following questions.

  1. What are the initial cash flows?
  2. What are the operating cash flows at the end of the first year?
  3. What are the terminal year cash flows?
  4. What is the NPV of the replacement cash flows?

Reference no: EM133073439

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