XYZ Company’s machine was purchased 5 years ago for $55,000. It had an expected life of...

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XYZ Company’s machine was purchased 5 years ago for$55,000. It had an expected life of 10 years when it was bought,and its remaining depreciation is $5,500 per year for each year ofits remaining life and can be sold for $20,000 at the end of itsuseful life. A new machine can be purchased for $120,000, includingthe installation costs. During its 5-year life, it will reduce cashoperating expenses by $30,000 per year. Sales revenue will not beaffected. At the end of its useful life, the machine is estimatedto be sold at $10,000. We will use MARCS depreciation, and themachine will be depreciated over its 5-year property class life.The old machine can be sold today for $35,000.
The tax rate is 25%
WACC is 16%
a) what is the amount of the initial cash flow at Year 0if the new machine is purchased?
b)Calculate the after-tax salvage value of the newmachine at the end of the project?
c)Calculate the incremental cash flows that will occurat the end of years 1-5?
D) Calculate NPV, Payback discounted payback andIRR
*Use excel cell reference for the questions for theabove questions

Answer & Explanation Solved by verified expert

3.6 Ratings (587 Votes)

AnswerThe cash flows NPV and IRR calculations are See Answer

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XYZ Company’s machine was purchased 5 years ago for$55,000. It had an expected life of 10 years when it was bought,and its remaining depreciation is $5,500 per year for each year ofits remaining life and can be sold for $20,000 at the end of itsuseful life. A new machine can be purchased for $120,000, includingthe installation costs. During its 5-year life, it will reduce cashoperating expenses by $30,000 per year. Sales revenue will not beaffected. At the end of its useful life, the machine is estimatedto be sold at $10,000. We will use MARCS depreciation, and themachine will be depreciated over its 5-year property class life.The old machine can be sold today for $35,000.*The tax rate is 25%*WACC is 16%a) what is the amount of the initial cash flow at Year 0if the new machine is purchased?b)Calculate the after-tax salvage value of the newmachine at the end of the project?c)Calculate the incremental cash flows that will occurat the end of years 1-5?D) Calculate NPV, Payback discounted payback andIRR*Use excel cell reference for the questions for theabove questions