Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax earnings before depreciation, interest and taxes (EBIDT) of $15,000 per year. The firm has a 40 percent tax rate.
1) The cash flow pattern for the capital investment proposal is ________.
A) a mixed stream and conventional.
B) a mixed stream and non-conventional.
C) an annuity and conventional.
D) an annuity and non-conventional.
2) The book value of the existing asset is ________.
3) The tax effect on the sale of the existing asset results in ________.
4) The incremental depreciation expense for year 1 (for the new asset) is ________.
5) The incremental depreciation expense for year 5 (for the new asset) is ________.
6) The annual incremental after-tax cash flow from operations for year 1 (for the new equipment) is ________.