Question: this is actually an asset replacement project. The original basis of the existing machine was $30,000 and depreciated using straight-line over five years ($6,000 per
this is actually an asset replacement project. The original basis of the existing machine was $30,000 and depreciated using straight-line over five years ($6,000 per year). The machine has two years of depreciation and four years of useful life remaining. The company can sell the current machine for $10,000. The new machine will not increase revenues but it decreases operating expenses by $5,000 per year. Net Working Capital will initially rise to $10,000 from $5,000 (old). Calculate the relevant incremental cash flows for this investment including initial cash outflow, operating cash flows and terminal cash flow
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