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Luba_88
2 months ago
8

Zen Manufacturing Company is considering replacing a four-year-old machine with a new, advanced model. The old machine was purch

ased for $60,000, has an estimated useful life of 10 years with no salvage value, and has annual maintenance costs of $15,000. The new machine would cost $45,000, but annual maintenance costs would be only $6,000. The new machine would have an estimated useful life of 10 years with no salvage value. Using straight-line depreciation and an assumed 40% tax rate, compute the additional annual cash inflow if the old machine is replaced.
Business
1 answer:
harina [3.8K]2 months ago
4 0
$4,800 Explanation: The calculation for the increased annual cash inflow is detailed below: Savings from the new machine's annual maintenance costs = $15,000 - $6,000 = $9,000 Net maintenance savings = $9,000 × (1 - 0.4) = $5,400 Reduction in depreciation due to acquiring new equipment = ($60,000 ÷ 10) - ($45,000 - 10) = $6,000 - $4,500 = $1,500 Tax implications from decreased depreciation = $1,500 × 0.4 = $600 Net annual cash inflow associated with new machinery = Net maintenance savings - Tax impact = $5,400 - $600 = $4,800. Hence, this process yielded the computed additional annual cash inflow.
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Explanation:

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Answer:

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