Based on the calculation of incremental free cash flows

Assignment Help Financial Management

Reference no: EM131327615

One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over ten years and has no salvage value. You expect that the new machine will produce a gross profit (revenues minus operating expenses other than depreciation) of $40,000 per year for the next ten years. The current machine is expected to produce a gross profit of $20,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value in the end. The market value today of the current machine is $50,000. Your company’s tax rate is 45%, and the cost of capital for this type of equipment is 10%.

Based on the calculation of incremental free cash flows, what is the NPV of using the new machine to replace its one-year-old machine?

Reference no: EM131327615

Questions Cloud

Identify an area of staff in your organization that requires : Identify an area of staff in your organization that requires improvement for any reason. 'For example, an obsolete technology that is currently being used in the organization can affect the output of colleagues and may lead to underperformance.

When choosing between active or passive exporting strategy : Discuss some of the major issues to consider when choosing between an active or passive exporting strategy.-Assume that your CEO has just asked you to write a report detailing the risks and potential benefits of this deal.

Which stereotypes of the opposite gender cause the damage : How has scientific research influenced gender stereotypes of the opposite gender? Which stereotypes of the opposite gender cause the most damage in a child's perception of his or her future abilities and why

Write a report detailing the risks and potential benefits : You work for a company with no international experience that has an efficient production method for small engines. - write a report detailing the risks and potential benefits of this deal.

Based on the calculation of incremental free cash flows : One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today. It will be depreciated on a straight-line basis o..

Make material flow and timing plan for sports obemeyer : Make material flow and timing plan for sports obemeyer. Find production amount and production times of 10 different SKU's before season considering the products producing in China.

Identify two microeconomics and two macroeconomics principle : How does the price elasticity of demand affect a consumer's purchasing and the firm's pricing strategy as it relates to the simulation/video?

What was your favorite human ecology topic : A prospective student wants to know what the Human Ecology course is about. What do you tell them? What was your favorite Human Ecology topic of the course and why

Assume frank makes his payments at the end of each year : Frank, who has just turned 40, would like to receive annual retirement payments of $55,000 over a 20 year period starting when he is 65 years old. Assume Frank makes his payments at the end of each year. How much does Frank need to save at the end of..

User Account

All Pages