What is initial cash outflow for the replacement project

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Reference no: EM132012677

Ford Motor Company (F) is considering replacing an old automated assembly line with a new one that will cost $200,000. Delivery charges on the new machine are expected to be $5,000, while installation/modification charges are anticipated to be $10,000. The new machine is expected to increase annual before-tax revenues by $75,000 and fixed costs by $10,000. The replacement machine will be depreciated using MACRS 3-year class (33%, 45%, 15%, 7%), and could be sold after 3 years for $30,000. The old assembly line still has two years of depreciation left ($5,000 per year) and can be sold today for $10,000. The firm’s WACC is 10%, and its marginal tax rate is 40%.

a) What is the initial cash outflow for the replacement project?





None of the above

b) What is the depreciation outlay in the first year?





None of the above

c) What is the operating cash flow in the third and final year?





None of the above

d) What is the net present value (NPV) and should the company replace the old assembly machine?

44,008.41, Accept

$25,961.83, Accept

-$44,008.41, Reject

-$25,961.83, Reject

None of the above

Reference no: EM132012677


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