Question: Wizard Productions Limited (WPL) is considering replacing its old fully depreciated forklift with a new model costing $850,000. The consultants estimate the old forklift will

Wizard Productions Limited (WPL) is considering replacing its old fully depreciated forklift with a new model costing $850,000. The consultants estimate the old forklift will be able to be sold for a scrap value of $107,000 and the new forklift will have a life of 5 years. Due to the efficiency of the new forklift it will increase the amount of space WPL has for inventory and increase stock by $620,000 which will result in increased sales of $170,000 as well as increased administration expenses of $250,000. The new forklift will reduce its returned sales and rejected products; this will result in savings of $64,000 a year. Due to the efficiency of the forklift wage costs for storage and handling/packing will fall by $176,000 a year. Depreciation allowance for tax is 9 years straight line for the forklift. What is the yearly incremental operating cash flow to the nearest dollar for this project given the company tax rate is 30%?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!