Your company plans to produce a product for two more years and then to shut down

Question

Your company plans to produce a product for two more years and then to shut down production. You are considering replacing an old machine used in production with a new machine. The Old machine originally cost $ 358 and was bought Three (3) years ago (i.e. it has depreciated for three years). It could be sold today for $ 87 or sold in two years for $ 21 . The New machine would cost $ 359 and could be sold in two years for $ 175 . The new machine is more efficient than the old machine and would reduce waste, and therefore the cost of materials, by $ 17 per year. Due to the lower waste, we could also have a one-time reduction in inventory of 22 . The firm's tax rate is 36 %. Both machines are in the 4 year MACRS class, with depreciation amounts of 33%, 45%, 15% and 7%. What are the Operating Cash Flows in the first year (Year 1) with the new machine?

Explanation / Answer

new machine ist year cost=359-17-22=320.dep=33%.therefore=320-105=215

after tax cost=215-36%=138

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