Question

Mom’s Cookies, Inc., is considering the purchase of a new cookie
oven. The original cost of the old oven was $30,000; it is now five
years old, and it has a current market value of $13,333.33. The old
oven is being depreciated over a 10-year life toward a zero
estimated salvage value on a straight-line basis, resulting in a
current book value of $15,000 and an annual depreciation expense of
$3,000. The old oven can be used for six more years but has no
market value after its depreciable life is over. Management is
contemplating the purchase of a new oven whose cost is $25,000 and
whose estimated salvage value is zero. Expected before-tax cash
savings from the new oven are $4,000 a year over its full life, you
can use bonus depreciation on the oven, and the cost of capital is
10 percent. Assume a 21 percent tax rate.

What will the cash flows for this project be? **(Round your
answers to the nearest dollar amount.)**

YEAR - 0 , 1, 2, 3, 4 , 5, 6

FCF -

Answer #1

**Cashflows arise from change in depreciation
amount:**

**Replacement analysis:**

Cookie Cutter Corp. is considering a new project whose data are
shown below. The equipment that would be used has a 5-year tax
life, would be depreciated by the straight-line method over its
5-year life, and would have a zero salvage value. No change in net
operating working capital would be required. Revenues and other
operating costs are expected to be constant over the project's
5-year life. What is the project's IRR? Do not
round the intermediate calculations. State in...

Cookie Cutter Corp. is considering a new project whose data are
shown below. The equipment that would be used has a 5-year tax
life, would be depreciated by the straight-line method over its
5-year life, and would have a zero salvage value. No change in net
operating working capital would be required. Revenues and other
operating costs are expected to be constant over the project's
5-year life. What is the project's IRR? Do not
round the intermediate calculations. State in...

Cookie Cutter Corp. is considering a new project whose data are
shown below. The equipment that would be used has a 5-year tax
life, would be depreciated by the straight-line method over its
5-year life, and would have a zero salvage value. No change in net
operating working capital would be required. Revenues and other
operating costs are expected to be constant over the project's
5-year life. What is the project's IRR? Do not
round the intermediate calculations. State in...

Cookie Cutter Corp. is considering a new project whose data are
shown below. The equipment that would be used has a 5-year tax
life, would be depreciated by the straight-line method over its
5-year life, and would have a zero salvage value. No change in net
operating working capital would be required. Revenues and other
operating costs are expected to be constant over the project's
5-year life. What is the project's NPV? Do not
round the intermediate calculations and round...

Cookie Cutter Corp. is considering a new project whose data are
shown below. The equipment that would be used has a 5-year tax
life, would be depreciated by the straight-line method over its
5-year life, and would have a zero salvage value. No change in net
operating working capital would be required. Revenues and other
operating costs are expected to be constant over the project's
5-year life. What is the project's NPV? Do not round the
intermediate calculations and round...

Fairfax Pizza is considering buying a new oven. The new oven
would be purchased today for 14,200 dollars. It would be
depreciated straight-line to 1,000 dollars over 2 years. In 2
years, the oven would be sold for an after-tax cash flow of 2,300
dollars. Without the new oven, costs are expected to be 11,600
dollars in 1 year and 18,000 in 2 years. With the new oven, costs
are expected to be 900 dollars in 1 year and 15,400...

Fairfax Pizza is considering buying a new oven. The new oven
would be purchased today for 20,600 dollars. It would be
depreciated straight-line to 1,400 dollars over 2 years. In 2
years, the oven would be sold for an after-tax cash flow of 2,600
dollars. Without the new oven, costs are expected to be 12,300
dollars in 1 year and 17,600 in 2 years. With the new oven, costs
are expected to be -400 dollars in 1 year and 12,000...

Fairfax Pizza is considering buying a new oven. The new oven
would be purchased today for 19,200 dollars. It would be
depreciated straight-line to 1,200 dollars over 2 years. In 2
years, the oven would be sold for an after-tax cash flow of 2,600
dollars. Without the new oven, costs are expected to be 13,600
dollars in 1 year and 17,700 in 2 years. With the new oven, costs
are expected to be 1,100 dollars in 1 year and 13,400...

Fairfax Pizza is considering buying a new oven. The new oven
would be purchased today for 21,200 dollars. It would be
depreciated straight-line to 1,800 dollars over 2 years. In 2
years, the oven would be sold for an after-tax cash flow of 2,800
dollars. Without the new oven, costs are expected to be 13,800
dollars in 1 year and 19,700 in 2 years. With the new oven, costs
are expected to be 1,400 dollars in 1 year and 12,200...

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