Bridgeport Industries is considering the purchase of new equipment costing $1,28

Question

Bridgeport Industries is considering the purchase of new equipment costing $1,280,000 to replace existing equipment that will be sold for $194,000. The new equipment is expected to have a $220,000 salvage value at the end of its 4-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 32,800 units annually at a sales price of $29 per unit. Those units will have a variable cost of $15 per unit. The company will also incur an additional $86,000 in annual fixed costs.

Identify the amount and timing of all cash flows related to the acquisition of the new equipment. (Enter negative amounts using a negative sign preceding the number e.g. -45.)

Cash Flow Timing Amount Purchase of new equipment

Year 0Year 1Year 2Year 3Year 4Years 1-4

$

Salvage of old equipment

Year 0Year 1Year 2Year 3Year 4Years 1-4

Sales revenue

Year 0Year 1Year 2Year 3Year 4Years 1-4

Variable costs

Year 0Year 1Year 2Year 3Year 4Years 1-4

Additional fixed costs

Year 0Year 1Year 2Year 3Year 4Years 1-4

Salvage of new equipment

Years 1-4Year 2Year 3Year 1Year 4Year 0

Explanation / Answer

Purchase of new equipment - Year 0 - $1280000

Salvage of old equipment - Year 0 - $194000

Sales Revenue - Years 1-4 - $951200 per year

Variable cost- Years 1-4 - $492000

Additional fixed costs - Year 1-4 -$86000

Salvage of new equipment - Year 4 - $220000

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