Question

Singleton Enterprises is considering replacing the latex molding it uses to fabricate rubber chickens with a...

Singleton Enterprises is considering replacing the latex molding it uses to fabricate rubber chickens with a newer more efficient model. The old machine has a book value of $300,000 and a remaining operating life of 5 years. The old machine would be worn out and worthless in 5 years, but Singleton can sell it now to a Halloween manufacturer for $150,000. The new machine has a purchase price of $775,000, an estimated operating life of 5 years, an estimated salvage value of $105,000, and is eligible for an immediate 100% bonus depreciation. The company’s marginal tax rate is 25% and the project cost of capital is 12%. What is the initial or acquisition net cash flow needed to calculate the NPV of this replacement decision?

  1. $-775,000
  2. $-393,750
  3. $-431,250
  4. $-468,750
  5. $-581,250
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