Determine what are operating cash flows in the first year
Course:- Financial Econometrics
Reference No.:- EM13334928

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Your company plans to produce a product for two more years and then to shut down production. You are considering replacing an old machine used in production with a new machine. The Old machine originally cost $ 363 and was bought Three (3) years ago (i.e. it has depreciated for three years). It could be sold today for $ 78 or sold in two years for $ 26 . The New machine would cost $ 467 and could be sold in two years for $ 213 . The new machine is more efficient than the old machine and would reduce waste, and therefore the cost of materials, by $ 12 per year. Due to the lower waste, we could also have a one-time reduction in inventory of 32 . The firm's tax rate is 40 %. Both machines are in the 4 year MACRSclass, with depreciation amounts of 33%, 45%, 15% and 7%. What are the Operating Cash Flows in the first year (Year1) with the new machine?

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