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Edwards manufacturing company is considering replacing one machine with another the old machine was purchased...

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Accounting

Edwards manufacturing company is considering replacing one machine with another the old machine was purchased 3years ago for an installed cost of 10000 USD The firm is depreciating the machine under MACRS using a 5 year recovery period ((Depreciation precentages are year 1 =20% year 2 =32% year 3 = 19%) the new machine costs 24000 USD and requires 2000 USD in installation costs the firm is subject to 40% tax rate (a) calculate the initial investement for the replacement if the firm is able to sell the old machine for 7000 USD ? (b) New machine will operate 6 years it will generate after tax incremental cash flow of 4000 USD per year at the end of the sixth year book value and market value of the machine are estimated to be 0. edwards manufacturing cost of capitalis 12% should the replacement be made ?

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