1. a) POM Bakery is considering replacement of a custard injecting machine with a new high-speed...

 

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1. a) POM Bakery is considering replacement of a custard injecting machine with a new high-speed injector, which can fill twice as many cakes per hour as the old machine. The existing injection machine was purchased 2 years ago for $4M. It could be sold today for $2M and its expected salvage value at the end of its life is $0.5M. The injectors are in Class 43 with a 30% depreciation rate. The new custard injector costs $3M. The new machine will be sold for $1.5M at the end of 3 years. The new machine will increase EBITDA by $800,000 per year. The company's tax rate is 40% and its cost of capital is 12%. The new machine will not affect working capital. What are the initial cash flows at the time of replacement? (Round your answer to the nearest dollar.) 1. a) POM Bakery is considering replacement of a custard injecting machine with a new high-speed injector, which can fill twice as many cakes per hour as the old machine. The existing injection machine was purchased 2 years ago for $4M. It could be sold today for $2M and its expected salvage value at the end of its life is $0.5M. The injectors are in Class 43 with a 30% depreciation rate. The new custard injector costs $3M. The new machine will be sold for $1.5M at the end of 3 years. The new machine will increase EBITDA by $800,000 per year. The company's tax rate is 40% and its cost of capital is 12%. The new machine will not affect working capital. What are the initial cash flows at the time of replacement? (Round your answer to the nearest dollar.)

Answer rating: 100% (QA)

To calculate the initial cash flows at the time of replacement we need to consider the following Ini... View the full answer