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BC Gas industries is considering a replacement of an old petroleum refining machine (model 16) acquired 4 years ago with costs of:

BC Gas industries is considering a replacement of an old petroleum refining machine (model 16) acquired 4 years ago with costs of:

Purchasing price                     450,000

Shipping & Handling costs    10,000

Installation cost                      15,000

The new model 107 will be acquired at costs of

Purchasing price                     750,000

Shipping & Handling costs    20,000

Installation cost                      30,000

The new model will result in cost savings of 50,000 annually during years 1 to 4, 20,000 annually in the next 5 years and 10,000 annually during the last 2 years. The old model could be sold at his fair market value $240,000. ABC Gas industries tax rate is 36% and cost of capital is 16%.


Compute the following:

a.    Incremental depreciation year 2 and year 6

b.    Cash flow from the sale of model 16

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