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The Winn Machine Tool Company purchased a piece of...

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The Winn Machine Tool Company purchased a piece of equipment for $10,000 five years ago, and its current market value is $2,000. At the time of purchase, the equipment had an expected life of ten years and no expected salvage value on retirement. It has been depreciated on a straight-line basis. The firm wishes to buy new equipment at a cost of $20,000 with no expected salvage value. The new equipment has an estimated economic life of five years. It is expected to reduce operating costs by $2,000 a year and to increase sales by $4,000 a year. It has a depreciation life of five years and is expected to be depreciated on a straight-line basis. The tax rate is 50 percent. (a) Determine the net cash investment of the project (or the cost of the project). (b) Determine the project?s incremental net cash flows (or NIAT + depreciation).

 

Paper#8483 | Written in 18-Jul-2015

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