need help Wooldridge furniture is replacing its old machine with a more efficien

Question

need help

Wooldridge furniture is replacing its old machine with a more efficient one. The old machine is being depreciated on a straight-line basis at a rate of $10,000 per year. The old machine has a current book value of $ 100,000 and a 10-year remaining useful and depreciation life. The new machine, which costs $910,000, will be depreciated for 10 years using simplified straight-line depreciation to zero. Introducing the more efficient machine is expected to increase revenues by $50,000 per year and reduce annual operating costs by $80,000. Compute the year 2 cash flow for this project. Assume Wooldridge has a marginal tax rate of 40%. $110,400 $49,520 $34,520 $122,250

Explanation / Answer

INCREMENTAL DEPRECIATION = 910000/10 - 10000

=91000 - 10000

= 81000

CASH FLOW = (INCREASE IN REVENUE + DECREASE IN COST - INCREMENTAL DEPRECIATION)(1-t) + INCREMENTAL DEPRECIATION

CASHFLOW IN 2ND YEAR = (50000 + 80000 - 81000)*0.6 + 81000

= 110400

THREFORE THE ANSWER IS OPTION - A:- $110400

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