What will the cash flows for the project be

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Question: Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $36,000; it is now five years old, and it has a current market value of $15,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $18,000 and an annual depreciation expense of $3,600. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $4,000 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a 5-year life, and the cost of capital is 10 percent. Assume a 34 percent tax rate. What will the cash flows for this project be?

Reference no: EM132001657

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