A firm is considering the replacement of its existing machine with new automated machinery costing...
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Accounting
A firm is considering the replacement of its existing machine with new automated machinery costing $850,000. The new machine will lead to an increase in cash sales of $280,000 p.a. Annual interest expense will increase from $15,000 to $25,000.
Annual cash operating expenses are currently $300,000 and will decrease by $60,000 with the new machine. The new machine has a five-year life for tax purposes and for internal management accounting the firm assumes all non-current assets have a ten-year tax life.
The firm will sell its existing machine for $73,000 today and this machine is being depreciated at $23,000 p.a. over its remaining five-year life. Assume the company tax rate is 30%.
What are the 'cash flows over the life'?
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