The Following Information Pertains to a Proposed Replacement Project with a Five-Year

question 178

Essay

The following information pertains to a proposed replacement project with a five-year life:
$\begin{array}{lr}\text {Proposed investment in new machine }&\$ 125,000\\\text {Cost of old machine (purchased 4 years ago) }&\$ 60,000\\\text {Estimated salvage value of old machine }&\$ 40,000\\\text {Original depreciable life of old machine }&8 years\\\text {Estimated depreciable life of new machine }&5 years\\\text {Depreciation method for old machine }&\text { straight line }\\\text { Depreciation method for new machine}&\text { straight line }\\\text {Annual maintenance cost of old machine }&\$25,000\\\text {Estimated anmual maintenance cost of new machine }&\$15,000\\\text {Projected annual labor savings from new machine }&\$20,000\\\text {Corporate tax rate }&34\%\\\text {Corporate cost of capital }&12\%\\\end{array}$
a. Develop the incremental cash flows for the project?
b. What is the project's NPV?

($000):

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Definitions:

Geographic

Relating to the physical features of the earth or the distribution of populations, often influencing environmental, economic, and social patterns.

Product

is anything offered to a market that can satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, information, and ideas.

Work Flow

Work flow refers to the sequence of processes through which a work project or task passes from initiation to completion.

Customer Classification

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