Reference no: EM13272475
A company wants to update their assets by buying some new machinary and selling some old equipment. The new machinary will cost $100,000 and will be depriciated using 3- year MACROS (33%, 45%, 15%, 7%). At the end of the third year, the machinary is expected to be sold for $10,000.
The old equipment was bougt three years ago for $60,000 and was being depreciated over four years using straight-line depreciation. It can be sold today for $10,000. If they do not buy the new machinary and replace the old equipment, then the old equipment is expected to be held for another 3 years at which point it will be worthless.
Regardless of whether they buy the new machinary, Sales will be $500,000 for the next three years, COGS will fall from 70% of Sales to 60% of Sales if they buy the new machinary. The tax rate is 40%
1. What is the Net Investment (initial Cash outflow or CF0) for this project?
2. What is the Depreciation Expense?
3. What is the Operating Cash Flow in year two for this project
4.What is the after tax salvage value of selling the new machinary in three years?
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