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Calvin Inc. is considering the purchase of a new state-of-art machine to replace its hand-operated machine. Calvin's effective tax rate is 40%, and its cost of capital is 12%.Data regarding the existing and new machines are presented below. The existing machine has been in service for seven years and could be sold currently for $25,000. Calvin expects to realize a before-tax annual reduction in labor costs of $30,000 if the new machine is purchased and placed in service. If the new machine is purchased, the incremental cash flows for the fifth year would amount to
B. $26,000 C. $18,000 D. $24,000 |