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52 A replacing Bi hng v gi 3.300.000 years. The The machine is being deprecated of years, and can be for 350,000 500.000. The company is back and ples The new machine will 5250,000 in peringos per change (a) the new machine is pached today (i) Then what is the lives today? Go What will be the depreciation in the machine for the (b) of the old machine is sold today after the new machine is bought (i) Then what is the wher-tassage from the What will be the latter operating cash flow from the peng convings from the new machine and the incremental depreciation? (c) of the new machine is bought and (d) Based on your answers to and can you call the NPV of all the incremental cash-flows of buying the new machine and willing the old fort-tot-57 Should the new machine be bought www to we *** .... M. 2 3 14.11.2014 SET TA *** 7 85 11 12 13 301 52 A replacing Bi hng v gi 3.300.000 years. The The machine is being deprecated of years, and can be for 350,000 500.000. The company is back and ples The new machine will 5250,000 in peringos per change (a) the new machine is pached today (i) Then what is the lives today? Go What will be the depreciation in the machine for the (b) of the old machine is sold today after the new machine is bought (i) Then what is the wher-tassage from the What will be the latter operating cash flow from the peng convings from the new machine and the incremental depreciation? (c) of the new machine is bought and (d) Based on your answers to and can you call the NPV of all the incremental cash-flows of buying the new machine and willing the old fort-tot-57 Should the new machine be bought www to we *** .... M. 2 3 14.11.2014 SET TA *** 7 85 11 12 13 301 52 A replacing Bi hng v gi 3.300.000 years. The The machine is being deprecated of years, and can be for 350,000 500.000. The company is back and ples The new machine will 5250,000 in peringos per change (a) the new machine is pached today (i) Then what is the lives today? Go What will be the depreciation in the machine for the (b) of the old machine is sold today after the new machine is bought (i) Then what is the wher-tassage from the What will be the latter operating cash flow from the peng convings from the new machine and the incremental depreciation? (c) of the new machine is bought and (d) Based on your answers to and can you call the NPV of all the incremental cash-flows of buying the new machine and willing the old fort-tot-57 Should the new machine be bought www to we *** .... M. 2 3 14.11.2014 SET TA *** 7 85 11 12 13 301 Question 5 [15 Points]: A company is thinking about replacing an old machine with a new one. The old machine cost $1.3 million. The new machine will cost $1.56 million. The new machine will be depreciated according to 5-year MACRS, and will be sold at $300,000 after 5 years. The new machine will require an investment of $150,000 in working capital, which can be recovered after 5 years. The old machine is being depreciated at a rate of $130,000 per year to a book value of zero in 5 years, and can be sold for $50,000 after 5 years. It can be sold for $300,000 now. The company is in a 30% tax bracket and applies a 12% discount rate. The new machine will save $250,000 in operating costs per year. There is no change in revenues. (a) If the new machine is purchased today, (i) Then what is the total investment today? (ii) What will be the depreciation (in $) on the new machine for the next 5 years? (iii) What will be the after-tax salvage value of the machine after 5 years? (b) If the old machine is sold today after the new machine is bought, (i) Then what is the after-tax salvage value from the sale of the old machine? (ii) What will be the annual after-tax operating cash-flow from the operating cost savings from the new machine and the incremental depreciation? (c) If the new machine is bought and the old machine is sold, then what is the incremental cashflows for at time t = 0 and at time t = 5? (d) Based on your answers to (a), (b), and (c), can you calculate the NPV of all the incremental cash-flows of buying the new machine and selling the old machine for t=0 tot = 5? Should the new machine be bought

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