Bergman case8 - Chris Bergman Principles of Finance SECTION...

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Chris Bergman Principles of Finance SECTION 25049 OPC 004 christopherbergman@g.austincc.edu Case 8 a. Initial cost of existing machine was $30,000 accumulated depreciation is $30,000 RBV is $0 Existing machine could be sold for $20,000 The potential gain on sale is $20,000 Tax on gain (40%) = $8,000 Cash Inflow= $12,000 Initial Investment of Alt 1: Initial cost of renewing the existing machine is $90,000 The net initial investment for renewing the machine is $78,000 Initial Investment of Alt 2: Initial cost of the new machine is $110,000 The net initial investment of the new machine would be $98,000 b. Incremental operating cash flows with the proposed replacement after year 5 Alt 1: Expected annual operating costs from the renewal = $968,100 Expected annual revenue from the renewal = $1,550,000 PBDT = $1,550,000 - $968,100 = $581,900 Depreciation year 5 = .12 x $90,000 = $10,800 NPBT= $$581,900 - $10,800 = $571,100 Tax on net profit (40%) = $228,440 Operating cash flow (renewal)= $353,460 Expected annual operating costs from the replacement machine = $998,900
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Bergman case8 - Chris Bergman Principles of Finance SECTION...

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