Find out the cash flows associated with the decision given

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Problem 1: ABC and Co. is considering a proposal to replace one of its plants costing $ 60,000 and having a written down value of $ 24,000. The remaining economic life of the plant is 4 years after which it will have no salvage value. However, if sold today, it has a salvage value of $ 20,000. The new machine costing $1,30,000 is also expected to have a life of 4 years with a scrap value of $ 18,000. The new machine, due to its technological superiority, is expected to contribute additional annual benefit (before depreciation and tax) of $ 60,000. Find out the cash flows associated with this decision given that the tax rate applicable to the firm is 40%. (hint: consider the salvage value of the old asset in computing the initial investment of the new asset.)

Reference no: EM132755914

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