What will the cash flows for this project be?

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Question: Nana's Bakery is considering the purchase of a bigger oven. The original cost of the old oven was $37,000; it is now five years old, and it has a current market value of $16,000. 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 $18,500 and an annual depreciation expense of $3,700. 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 $26,000 and whose estimated salvage value is zero.

Expected before-tax cash savings from the new oven are $4,100 a year over its full MACRS depreciable life. Depreciation is computed using MACRS five-year life. Assume a 21 percent tax rate.

What will the cash flows for this project be?

Reference no: EM133264842

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