Bulldog Inc. purchased a leather machine seven years ago. The cost of the machine was $11,200. It was expected to be used for 10 years. The machine has been depreciated on a straight-line basis with an estimated salvage value of s1.200. The machine can be sold for $3,500 today Bulldog is considering the purchase of a new leather-cutting machine to replace the existing machine. Having the new machine will result in an increase of revenue of$13,000, but the operating costs will also increase by $6,000 for three years. The new machine costs $14,000, with an expected salvage value of $2,000 at the end of the third year. The new machine will be depreciated using the MACRS method, and is considered a three-year property. There will be an increase of $1,600 in net working capital. Gorilla's tax rate is 40%, and cost of capital is 16%.
A. Compute the depreciation for the old machine and the new machine as well as the incremental depreciation for each of the next three years.
B. What is the book value of the old machine today?
C. What is the tax consequence of the sale of the old machine today?
D. What is the after-tax selling price of the old machine?
E. What is the net initial investment for the new machine?
F. The expected after-tax salvage value of the new machine is $1,620. Compute the expected net cash flow at the end of year 3. (Note: Youbare asked to find Cash Flow of year 3 only, not NPV.)