Muthusamy Curry Mills (MCM) is considering the purchase of a new milling equipment to replace an existing one that has a book value of $3,000 and can be sold for $1,500. The old machine is being depreciated on a straight-line basis and its estimated salvage value 3 years from now is zero. The new machine will reduce costs (before taxes) by $7,000 per year. It has a 3-year life; with an installed cost of $14,000; and it can be sold for an expected $2,000 at the end of the third year. The new machine would be depreciated over its 3-year life using the MACRS method. The applicable depreciation rates are as follows: Year 1: 33% Year 2: 45% Year 3: 15% Year 4: 7% Assume a 40% tax rate and a cost of capital of 16%. a. The initial investment associated with the replacement of the old milling equipment by the new one is? b. The incremental operating cash flows associated with the proposed replacement in Year 1 is? c. The incremental operating cash flows associated with the proposed replacement in Year 2 is?
note: can you help me answer the question for a, b and c?
Muthusamy Curry Mills (MCM) is considering the purchase of a new milling equipment to replace an existing one that has a book value of $3,000 and can be sold for $1,500. The old machine is being
Year 1: 33%
Year 2: 45%
Year 3: 15%
Year 4: 7%
Assume a 40% tax rate and a cost of capital of 16%.
a. The initial investment associated with the replacement of the old milling equipment by the new one is?
b. The incremental operating cash flows associated with the proposed replacement in Year 1 is?
c. The incremental operating cash flows associated with the proposed replacement in Year 2 is?
d. The incremental operating cash flows associated with the proposed replacement in Year 3 is?
e. The terminal cash flow is?
f. The
g. The
h. Should MCM replace the old milling equipment with the new one?
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