PDF corp needs to replace an old lathe with a new more efficient model The old l

Question

PDF corp needs to replace an old lathe with a new more efficient model The old lathe was purchsed for $ 50,000 nine years ago and has a current book value of $5,000 (The old machine is being depreciated on a straight -lined basis over a ten year useful life) The new lathe costs $ 100,000. It will cjost the company $10,000 to get the lathe to the factory and get it instaed The old machine will be sold as scrap meta for $2000 The new machine is also being depreciated on a straight ined basis over 10 years Sales are expected to increase $8,000 per year while operating expenses are expected to decrease by $12,000 per year. PDF's marginal tax rate is 40% Additional working capital of $3,000 is required to maintain the new machine and ghigher sales level The newathe is expected to be sod for $5,000 at the end of the project's ten year life. What is the project's terminal cash flow?

Explanation / Answer

What is the project's terminal cash flow 12000 XGAIN + 8000 X SALES + 5000 X SCRAPE -- 10800 X DEPRECIATION X (1-40% X TAX RATE) + 3000 XWC = 8520 +3000= 11520 DOLLARS

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