Question: Wilbur Corporation is considering replacing a machine The replacement will
Wilbur Corporation is considering replacing a machine. The replacement will cut operating expenses by $24,000 per year for each of the five years the new machine is expected to last. Although the old machine has a zero book value, it has a remaining useful life of five years. The depreciable value of the new machine is $72,000. Wilbur will depreciate the machine under MACRS using a 5-year recovery period and is subject to a 40 % tax rate on ordinary income. Estimate the incremental operating cash flows attributable to the replacement. Be sure to consider the depreciation in year 6.
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