Allen's Company bought a new copy machine to be depreciated straight linfe for three years for use by sales peronnel. Where would this purchase be reflected on the Statement of cash flows?

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23 Jan 2018

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Your company plans to produce a product for two more years and then to shut down production. You are considering replacing an old machine used in production with a new machine. The Old machine originally cost $ 339 and was bought Three (3) years ago (i.e. it has depreciated for three years). It could be sold today for $ 72 or sold in two years for $ 23 . The New machine would cost $ 473 and could be sold in two years for $ 219 . The new machine is more efficient than the old machine and would reduce waste, and therefore the cost of materials, by $ 10 per year. Due to the lower waste, we could also have a one-time reduction in inventory of 15 . The firm's tax rate is 39 %. Both machines are in the 4 year MACRS class, with depreciation amounts of 33%, 45%, 15% and 7%. What are the Operating Cash Flows in the first year (Year 1) with the new machine

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MBA Corp is considering whether to expand widget production. This would require the purchase of a new widget-producing machine at a cost of $5,400,000. The machine would produce 450,000 widgets per year during its useful life of three years, and would be depreciated for tax purposes at a rate of $1,800,000 per year. The machine would not have any salvage value. Expanding widget production would also require the use of a building that could otherwise be leased for $500,000 per year. Working capital required for the new machine would be 12% of the next yearâs sales. Widget prices are $20 and are expected to remain stable. The materials and labor required to produce a widget cost $12, and these costs are also expected to remain stable. The corporate income tax rate is 30%. The discount rate is 6% per year.

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yellowcaribou187

1. Suppose you buy an asset for $1,000,000. If it costs $100,000 for shipping and installation, how much is your investment outlay?

2. Suppose you buy an asset for $100,000 that is depreciated for tax purposes over 20 years using straight-line depreciation. Break down

the tax effects upon sale of this asset after five years if the sales

price is: (a) $125,000 (b) $100,000 (c) $75,000 (d) $50,000

3. The Schwab Steel Company is considering two different wire sol-dering machines. Machine 1 has an initial cost of $100,000, costs $20,000 to set up and is expected to be sold for $20,000 after 10 years. Machine 2 has an initial cost of $80,000, costs $30,000 to set up and is expected to be sold for $10,000 after 10 years. Both machines would be depreciated over 10 years using straight-linedepreciation. Schwab has a tax rate of 35%.

(a)

What are the cash flows related to the acquisition of each machine?

(b)

What are the cash flows related to the disposition of each machine?

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