What will be the incremental change in its annual cash flow

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The Godfrey Vending Company plans to replace 10 of its vending machines with newer models. The current machines were purchased three years ago for $8,000 each and are being depreciated (straight-line) to a salvage value of $2,000 five years from now. The machines collectively generate annual revenues of $30,000 and annual expenses of $12,000. New machines can be purchased for $12,000 each and will be depreciated (straight-line) to a salvage value of $7,000 five years from now. The new machine will generate annual sales of $40,000 because of less downtime than the old machines and annual expenses of $8,000 (smaller repair bills than the old machines).

a. If Godfrey's marginal tax rate is 25%, what will be the incremental change in its annual cash flow if the old machines are replaced?

Reference no: EM132516156

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