Existing machine
Purchased 3 years ago
Cost=22,000
Installation= 3000
Depreciation=3 years using the MACRS - 5 year
Recovery schedule
Current market value=10,000
Five year usable life remaining
Proposed machine
Cost= 45,000
Installation = 3000
Depreciation using MACRS 5-year recovery schedule
Five year usable life expected
The firm estimate the revenue and expenses for the proposed and existing equipment to be shown in the following table:
Proposed machine Existing Machine
Year Revenue Expenses year Revenue Expenses
1 62000 42000 1 47000 27000
2 68200 44100 2 50800 29200
3 75000 46300 3 54300 32000
4 82500 48600 4 57600 35300
5 78000 51000 5 60500 39400
The firm pays 40%taxes on income. Their firm's cost of capital is percent 14%. All dollar denominated answers are to be shown to the nearest dollar. Prepare the schedule /table of incremental cash flow for the proposed replacement project.