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Buy custom IF THE COAT FITS WEAR IT

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Topic: Business
Number of pages / Number of words: 5 / 1266
Essay's paper body

Cash inflows would include the after-tax selling price of the old machine. If the old machine is sold for more than its book value, there is a taxable gain and vice-versa. In the current case the initial outlay is as follows:

Price of new machine……………………….. $350,000

Shipping, Handling, Installation……………...


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$350,000

Shipping, Handling, Installation…………….. $ 4,500

Change in Net Working Capital

Increase in receivables $54,000

Increase in inventory $20,000

Increase in payables ($30,000)

$44,000

Total Cash Outflow……………………………$398,500

Cash Inflows at t = 0

Selling Price of old machine 100,000

Tax shield on Loss @ 34% 17,000

After-tax salvage value 117,000

Loss on sale = Book Value – Market Value

Where BV = 225,000 – 5*Depreciation = 225,000 - (5*15,000) = 150,000

Loss = 225,000 - 150,000 = 50,000

Initial outlay = 398,500 – 117,000 = $281,500

5...


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