Wolfs current machine was bought 4 years ago for $25,000 and falls into the MACRS 5-year class. It has 3 years of remaining life and a $6,000 salvage value three years from now. The current market value of the older machine is $14,500. Wolf could purchase a new machine for $36,000. Delivery costs $800 and installation costs $200. The new machine will increase inventory $1,800 and accounts payable is expected to increase $1,300. The new machine falls in the MACRS 5-year class, has a 3 year economic life and a salvage value at the end of 3 years of $8,000. It isn’t expected to increase revenue but is expected to decrease costs $16,000 per year. The firm has a 40% tax rate and a cost of capital of 10%. The MACRS 5 year class uses percentages: 20%, 32%, 19%, 12%, 11%, and 6% in order. Calculate the OCF's.
I can't seem to get the correct answer for any of the OCF's. The first one I tried was $100 less than the answer I was given. Can anyone help me understand what I'm doing wrong?
I can't seem to get the correct answer for any of the OCF's. The first one I tried was $100 less than the answer I was given. Can anyone help me understand what I'm doing wrong?