Question

Q) Your corporation is considering replacing older equipment. The old machine is fully depreciated and cost $53,633.00 seven years ago. The old equipment currently has no market value. The new equipment cost $55,937.00 . The new equipment will be depreciated to zero using straight-line depreciation for the four-year life of the project. At the end of the project the equipment is expected to have a salvage value of $14,087.00 . The new equipment is expected to save the firm $15,718.00 annually by increasing efficiency and cost savings. The corporation has tax rate of 29.85% and a required return on capital of 10.02% .

a) What is the total initial cash outflow? (show as negative number )

b) What are the estimated annual operating cash flows?

c) What is the terminal cash flow?

d) What is the NPV for this project?

Answer #1

[Use the
following information to answer the next 4 questions]
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