Alexander Manufacturing is planning to purchase a machine costing 117,952 to replace old production equipment, which has
Question:
Alexander Manufacturing is planning to purchase a machine costing 117,952 to replace old production equipment, which has a book value of 6,812. For the duration of the new machine's useful life, Alexander estimates needing to commit working capital of 4,160. Management estimates that investing in this machine will increase annual net after-tax cash flows by 56,694. The new equipment will be depreciated by the straight-line method over a 7-year life with a salvage value of 9,850. Alexander expects to receive 12,328 through the sale of the old equipment, which was purchased 9 years ago for 220,662. Calculate the after-tax net cash effect of the sale of the old equipment. Assume a 0.25 income tax rate and an 0.08 hurdle rate.
Introduction to Derivatives and Risk Management
ISBN: 978-1305104969
10th edition
Authors: Don M. Chance