Atlantic Control Company purchased a machine 2 years ago at a cost of $70,000. The machine is
Question:
Atlantic Control Company purchased a machine 2 years ago at a cost of $70,000.
The machine is depreciated using a simplified straight line over its class useful life of 7 years.
The machine would have no salvage value at the end of year 7, but could now be sold for $40,000.
A new replacement machine can be purchased for $80,000.
The new machine would depreciate in 5 years.
Rapidly changing technology has made this project necessary.
Delivery and installation charges will be $10,000 and a net working capital investment of $5,000 will be required for installation.
The new machine will not increase sales, but it will reduce operating costs by $20,000 per year.
The company's marginal tax rate is 35%.
What is the annual differential cash flow for years 1 through 5?
Expert Answer:
To calculate the annual differential cash flow for years 1 through 5 we need to consider the changes ... View the full answer
