Reference no: EM132741419

Problem 1: The Rodriguez Company's flange-lipping machine was purchased 5 years ago for $55,000. The machine was depreciated straight line to zero over its 10-year expected life. As old flange-lippers are robust and useful machines, it can be sold today for $35,000 and it can be sold for $20,000 at the end of its operating life. A new high-efficiency, digital-controlled machine can be purchased for an installed price of $120,000. During its 5-year life, it is expected to reduce annual operating expenses by $30,000 and to be worthless at the end of its expected life. The machine will be depreciated over its 5-year MACRS class life so the applicable rates are 20.00%, 32.00%, 19.20% and 11.52%, 11.52%, and 5.76%. The firm's marginal tax rate is 25% and the project cost of capital is 16%. What is the operating and terminal cash flows in Year 5 needed to calculate the NPV of this replacement decision?

Group of answer choices

Option 1: $11,309

Option 2: $39,581

Option 3: $12,684

Option 4: None of the other answers is correct

Option 5: $41,309