The details of a 4-year investment proposal to replace an old machine are as follows:
Capital cost of a new 4-year machine = $10,000
Salvage value of new machine in year 4 = $1,000
Current salvage value of old machine = $1,000
Current book value of old machine = $0
Extra initial inventory = $3,000 will be fully recovered when the project is finished
Existing warehouse building to install the new machine can be sold for $2,000 after-tax today and is worthless in four years’ time
R & D = $2000 spent in the previous year
Increase in before-tax revenue = $5,000 p.a.
Increase in before-tax operating costs = $1,000 p.a.
Allocated overhead = $800 of the existing overhead expense
Annual depreciation of new machine on straight-line prime cost basis = $2,500
Tax rate = 40%
What should be the Capital Cash Flow in year 4?
what should be the annual Operating Cash Flow in year 3?
what is the Capital Cash Flow in year 0
