Question 29 1 pts You are considering two machines, A and B that can be used for

Question

Question 29 1 pts You are considering two machines, A and B that can be used for the same purpose. Machine A costs $250,000, will reduce costs by $70,000 per year, needs net working capital of $20,000 at time zero which be released at the end of the project, has a 5 year straight line depreciable life and can be sold at the end of the project's life for $50,000. Machine B costs $320,000, will reduce costs by the same $70,000 per year, has net working capital of $40,000 at time zero (also released at the end of its life), has a ten year straight line depreciable life and can be sold at the end of its life for $60,000. Assume that the tax rate is 34% and the discount rate is 10%, what are the relevant per year operating cash flows associated with machine A for years 1 through 5? $52,800 O $69,800 $72,400 $63,200 $78,200

Explanation / Answer

Option D 63,200 is correct
Depreciation of Machine A = (Machine Cost A -0)/5 =250,000/5 = 50,000
Operating Cash flows of A = (Reduced Costs - Depreciation) ( 1 - tax rate) + depreciation
= (70000 - 50,000) * ( 1- 34%) + 50,000 = 20000 * 0.66 + 50000 = 63,200

Best of Luck. God Bless

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