Komatsu Cutting Technologies is considering replacing one of its CNC machines with one that is newer and more efficient. The firm purchased the CNC machine 10 years ago at a cost of $150,000. The machine had an expected economic life of 12 years at the time of purchase and an expected salvage value of $12,000 at the end of the 12 years. The original salvage estimate is still good, and the machine has a remaining useful life of 2 years. The firm can sell this old machine now to another firm in the industry for $35,000. A new machine can be purchased for $175,000, including installation costs. It has an estimated useful (economic) life of 8 years. The new machine is expected to reduce the cash operating expenses by $30,000 per year over its 8-year life, at the end of which the machine is estimated to be worth only $5000. The company has a MARR of 12%. The asset is classified as a Class 43 Property with a CCA rate of %30. The firm’s marginal tax rate is 40%. Compute the cash flows associated with retaining the old machine in years 1 to 2.
**This is problem 11.2, but with tax details
Komatsu Cutting Technologies is considering replacing one of its CNC machines with one that is newer and more efficient. The firm purchased the CNC machine 10 years ago at a cost of $150,000. The machine had an expected economic life of 12 years at the time of purchase and an expected salvage value of $12,000 at the end of the 12 years. The original salvage estimate is still good, and the machine has a remaining useful life of 2 years. The firm can sell this old machine now to another firm in the industry for $35,000. A new machine can be purchased for $175,000, including installation costs. It has an estimated useful (economic) life of 8 years. The new machine is expected to reduce the cash operating expenses by $30,000 per year over its 8-year life, at the end of which the machine is estimated to be worth only $5000. The company has a MARR of 12%. The asset is classified as a Class 43 Property with a CCA rate of %30. The firm’s marginal tax rate is 40%.
Compute the cash flows associated with retaining the old machine in years 1 to 2.
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