Estimating Incremental Cash Flows
Estimating Incremental Cash Flows
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The Dawn Co. is considering the purchase of new machines in order to expand their business. The machines have a useful life of five years. The required rate of return for the expansion is 17%. The company’s tax rate is 40%.
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 Purchase price of new machines $450,000
 Installation charges $50,000
 Increased revenues from expansion $200,000/year before taxes
 Salvage value at the end of the fifth year $175,000
 a. What is the cash outflow at t = 0?Â
 b. What are the deprecation deductions if the machines fall in the MACRS five-year class?Â
 c. What is the book value of the machines at the end of year five?Â
 d. What is the taxable gain/loss from the sale of the machines at the end of the useful life if they  are sold for the estimated salvage value?Â
 e. What is the tax on the sale of the machines at the end of year five?Â
 f. What is the terminal year non-operating cash flow (cash proceeds from the sale)?
Answers
Status NEW
Posted 21 Apr 2017 12:04 AM
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