Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $47,000; it is now five years old, and it has a current market value of $22,000. 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 $23,500 and an annual depreciation expense of $4,700. 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 $26,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $2,900 a year over its 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? (Note that the $47,000 cost of the old oven is depreciated over ten years at $4,700 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.) Year FCF $ 0 1,513.00 Answer is not complete. 3 4 5 6
Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $47,000; it is now five years old, and it has a current market value of $22,000. 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 $23,500 and an annual depreciation expense of $4,700. 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 $26,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $2,900 a year over its 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? (Note that the $47,000 cost of the old oven is depreciated over ten years at $4,700 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.) Year FCF $ 0 1,513.00 Answer is not complete. 3 4 5 6
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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