Reference no: EM133074203

The Rumpel Company purchased a felt press last year at a cost of $7,500. The machine has worn out quickly and is slowing production. It could be sold today for $4,000. The division manager reports that, for $12,000 (including installation), a new felt press can be bought. Two years after replacement the old press can be sold for $200 and the new press will be worth $2,000. The new press will increase EBITDA by $7,000, but to sustain the higher rate of production, the company will need additional felt inventory of $3,000. Taxes are 40%. Assume that depreciation is not tax deductible. What are the initial cash flows for the replacement?

The Rumpel Company purchased a felt press last year at a cost of $7,500. The machine has worn out quickly and is slowing production. It could be sold today for $4,000. The division manager reports that, for $12,000 (including installation), a new felt press can be bought. Two years after replacement the old press can be sold for $200 and the new press will be worth $2,000. The new press will increase EBITDA by $7,000, but to sustain the higher rate of production, the company will need additional felt inventory of $3,000. Taxes are 40%. Assume that depreciation is not tax deductible. What are the incremental operating cash flows in the first year after the replacement?

The Rumpel Company purchased a felt press last year at a cost of $7,500. The machine has worn out quickly and is slowing production. It could be sold today for $4,000. The division manager reports that, for $12,000 (including installation), a new felt press can be bought. Two years after replacement the old press can be sold for $200 and the new press will be worth $2,000. The new press will increase EBITDA by $7,000, but to sustain the higher rate of production, the company will need additional felt inventory of $3,000. Taxes are 40%. Assume that depreciation is not tax deductible. What are the terminal year cash flows?