IFC Corporation processes seafood with a machine it purchased several years ago for $500,000 with a current book value of $250,000. IFC is considering replacing the existing machine with a new one costing $700,000 plus $50,000 for delivery and installation. The new unit will require IFC to increase investment in new working capital by $40,000. The new machine will depreciated over 5 years to a zero balance. IFC expects to sell the existing machine for $275,000. IFCs tax rate is 40%.

With the new machine, IFCs revenues are expected to increase by $100,000 because the machine is faster and annual operating costs are expected to decrease by $20,000 (excluding depreciation) for the 5 years of the project. IFC estimates that its net working capital investment will increase by $10,000 per year for each year. After 5 years, the new machine will be sold for $70,000. The old machine is currently being depreciated at a rate of $50,000 per year.

Calculate the Net Investment

Asset Cost ________________

+ Delivery and Installation ________________

= Total installed cost ________________

- Proceeds from sale of old asset ________________

+ Tax on sale of old asset ________________

+ Net working capital ________________

= Net Investment ________________

Calculate Net Cash Flow

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Rev
- Oper Cost
- Dep
= OEBT
- Taxes
= OEAT
+ Dep
- NWC
+ After Tax Salvage
= NCF