Note because the firms only depreciable asset is

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Unformatted text preview: 90,000. The renewed machine would have a 5-year usable life and would be depreciated under MACRS using a 5-year recovery period. Renewing the machine would result in the following projected revenues and expenses (excluding depreciation): Year Revenue Expenses (excl. depreciation) 1 $1,000,000 $801,500 2 1,175,000 884,200 3 1,300,000 918,100 4 1,425,000 943,100 5 1,550,000 968,100 The renewed machine would result in an increased investment in net working capital of $15,000. At the end of 5 years, the machine could be sold to net $8,000 before taxes. Alternative 2 Replace the existing machine with a new machine that costs $100,000 and requires installation costs of $10,000. The new machine would have a 5-year usable life and would be depreciated under MACRS using a 5- 392 PART 3 Long-Term Investment Decisions year recovery period. The firm’s projected revenues and expenses (excluding depreciation), if it acquires the machine, would be as follows: Year Revenue Expenses (excl. depreciation) 1 $1,000,000 $7...
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This document was uploaded on 01/19/2014.

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