ABC welding machine has 6 years of remaining life. If kept, the machine will have depreciation expenses
Question:
ABC welding machine has 6 years of remaining life. If kept, the machine will have depreciation expenses of $700 each year. If the current book value is $4,200, and it can be sold for $3,500 at this time. If the old machine is not replaced, it can be sold for $800 at the end of its useful life. ABC is considering purchasing a new machine, which costs $13,200 and has an estimated useful life of 6 years with an estimated salvage value of $2,000. This machine will be depreciated straight-line to zero book value. The new machine would raise sales by $3,000 per year; the new machine would increase operating costs by $500 per year. To support the greater sales, the new machine would require $5,000 additional investment in NWC. ABC's tax rate is 25% and its WACC is 15%. What is the amount of cash flow in year 0 (initial cash flow)?
-$14,700
-$14,525
-$15,645
-$18,200
-$13,325