Reference no: EM133076598
ABC Company is considering replacing its machine with a newer one. The old machine has a book value of $674,557 with a remaining life of 5 years. It has been depreciated on a straight-line basis and can be sold now for $279,755.
The new machine has a purchase price of $1,161,805 and an additional installation cost of $3,500. At the time of replacement, the company will need an increase in net working capital of $11,000. It has a 5-year MACRS class life with an estimated salvage value of $105,000 at the end of year 6. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new machine is expected to generate an annual savings of $250,000 in operating costs. The company's tax rate is 35%, and the project cost of capital is 14%.
What is the initial net cash flow in YEAR 0 if the company purchases the new machine to replace the old one, which is sold right away? Round your answer to the nearest dollar, but do not enter $ in your answer. If your answer is negative, add "-" sign for the answer, e.g., xxx,xxx or -xxx,xxx. (Hint: Identify the relevant cash flow items first and then dollar amounts for Year 0.)
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