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Year With hoist A With hoist B With existing hoist 1 $21,000 $22,000 $14,000 2 21,000 24,000 14,000 3 21,000 26,000 14,000 4 21,000 26,000 14,000 5 21,000 26,000 14,000 The existing hoist can currently be sold for $18,000 and will not incur any
removal or cleanup costs. At the end of 5 years, the existing hoist can be sold to
net $1,000 before taxes. Hoists A and B can be sold to net $12,000 and $20,000
before taxes, respectively, at the end of the 5-year period. The firm is subject to a
40% tax rate on both ordinary income and capital gains. (Table 3.2 on page 100
contains the applicable MACRS depreciation percentages.)
a. Calculate the initial investment associated with each alternative.
b. Calculate the incremental operating cash inflows associated with each alternative. (Note: Be sure to consider the depreciation in year 6.)
c. Calculate the terminal cash flow at the end of year 5 associated with each
d. Depict on a time line the relevant cash flows associated with each a...
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- Fall '13