The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $45,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $4,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $110,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $35,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $40,000. The firm's tax rate is 35%, and the appropriate cost of capital is 14%. a. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign. b. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign. CF1 $ CF2 2$ CF3 2$ CFA $ CFs $ c. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest whole dollar. Negative value, if any, should be indicated by a minus sign. 24 Should Everly replace the flange-lipper?
The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $45,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $4,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $110,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $35,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $40,000. The firm's tax rate is 35%, and the appropriate cost of capital is 14%. a. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign. b. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign. CF1 $ CF2 2$ CF3 2$ CFA $ CFs $ c. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest whole dollar. Negative value, if any, should be indicated by a minus sign. 24 Should Everly replace the flange-lipper?
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P
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Transcribed Image Text:The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $45,000. It had an expected life of 10 years when it was bought
and its remaining depreciation is $4,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can
be sold for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be purchased for $110,000, including installation costs. During its 5-year life, it will reduce cash
operating expenses by $35,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be
worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the
applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $40,000. The firm's tax rate is 35%, and the appropriate cost of capital is 14%.
a. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Cash
outflow, if any, should be indicated by a minus sign.
$
b. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your
answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign.
CF1
$
CF2
$
CF3
$
CF4
$
CFs
$
c. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest whole dollar. Negative value, if any,
should be indicated by a minus sign.
$
Should Everly replace the flange-lipper?
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