What is the annual incremental after-tax cash flow

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Six years ago, Johnson Inc. purchased a polishing machine for $600,000. The company expected to use the machine for 10 years with no residual value at the end of the tenth year. The machine has been generating annual cash revenue of $460,000 and incurring annual cash operating costs of $210,000.Johnson is considering the purchase of a new digital polishing machine for $800,000, which will have annual cash revenues of $690,000 and annual cash operating costs of $180,000. The new machine is expected to have a useful life of four years. The company uses the straight-line depreciation method with no salvage value to depreciate all its assets. Assume, for purposes of analysis, that Johnson is subject to a 40% tax rate.

Problem 1: What is the annual incremental after-tax cash flow (AATCF) for this replacement decision analysis?

Option 1: $386,000

Option 2: $194,000

Option 3: $236,000

Option 4: $212,000

Reference no: EM132807065

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