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Karen Feasey, the Plant Manager of Industrial Coatings, is trying to decide whether to replace the old coatings machine with a new computerized machine. Her executive assistant gathers the following information:
Company Assumptions:
New Machine Assumptions:
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Cost of (includes shipping and installation): $150,000
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Salvage value at end of year 5: $35,000
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Depreciation Schedule: MACRS 7-year, with depreciation rates in years 1-5 of 14%,25%, 17%, 13%, and 9%, respectively
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Purchase will initially increase current assets by $15,000 and will increase current liabilities by $10,000
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Impact on Operating Cash Flows Years 1- 5 (includes depreciation and taxes): $28,000 (assume equal amount each year for simplicity)
Old Machine Assumptions:
During the process of making the decision whether or not to replace the old machine, Feasey calculates the initial cash outlay as approximately:
A. $155,000.
B. $134,000.
C. $130,000.
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