Sideshow Bob's Circus is considering replacing its current Whack-A-Mole machines with a new and improved model....

 

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Sideshow Bob's Circus is considering replacing its current Whack-A-Mole machines with a new and improved model. The old machines cost $600,000 7 years ago and is being depreciated to zero using 10-year straight- line depreciation. These old Whack-A-Mole machines has a current salvage value of $220,000. The new machines, The Wacky Whack-A-Mole, cost $1,000,000 today and qualifies for immediate expensing under 100% Bonus Depreciation. This machine would have an 10-year useful life. Revenues would rise $60,000 annually and operating costs would decrease $130,000 annually if the old machines are replaced. The company's marginal tax rate is 25% Refer to Sideshow Bob's Circus, what is the initial cash flow for this potential replacement project if Sideshow Bob's tax rate is 25%? Sideshow Bob's Circus is considering replacing its current Whack-A-Mole machines with a new and improved model. The old machines cost $600,000 7 years ago and is being depreciated to zero using 10-year straight- line depreciation. These old Whack-A-Mole machines has a current salvage value of $220,000. The new machines, The Wacky Whack-A-Mole, cost $1,000,000 today and qualifies for immediate expensing under 100% Bonus Depreciation. This machine would have an 10-year useful life. Revenues would rise $60,000 annually and operating costs would decrease $130,000 annually if the old machines are replaced. The company's marginal tax rate is 25% Refer to Sideshow Bob's Circus, what is the initial cash flow for this potential replacement project if Sideshow Bob's tax rate is 25%?

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