A company is analyzing the replacement of a color copier. The old machine was purchased 3 years ago for $30,000; it falls into the MACRS 5-year class; and it has 2 years of remaining life and an $8,000 salvage value 2 years from now. The current market value of the old machine is $17,000. The new machine has a price of $40,000, plus an additional $2,000 for installation and modification and an additional $2,000 for transportation. The new machine falls into the MACRS 5-year class, has a 2-year economic life, and can be salvaged for $23,000. The new machine will require a $7,000 increase in inventory, and accounts payable is expected to increase by $4,000. The new machine is expected to increase revenue by $8,000 per year and decrease costs by $3,000 per year. The firm has an 11 percent cost of capital and a marginal tax rate of 25 percent. The MACRS 5-year class uses the following percentages: 20%, 32%, 19%, 12%, 11%, and 6% (in that order). (Round all CFs to the nearest dollar.) What is the total net cash outflow at Year 0

E. Outflow of $32,075

Explanation:

Year 1 Outflow = Investment in the New asset (Step1) + Net working capital required  (Step2) - Sale Proceeds from the old machine  (Step3) -  Tax On the sale of old Machinery  (Step4)

Year 1 Outflow = $44,000 + $3,000 - $17,000 + $2,075 = $32,075

Now here:

Investment in the New Asset = New machine cost + Transportation of asset + Installation of asset

By putting values, we have:

Investment in the New Asset = 40000 + 2000 + 2000 = $44,000

Now

Net working capital required = $7,000 Investment in Inventory - $4,000 Increase in payables = $3,000

Fair Value of the Old Machine is $17000 which means this would be the sales proceeds on the old machinery's sales.

Old machine purchased 3 year ago at = $30,000

Depreciation schedule and book value of old machine are as follows:

Year            1             2           3           4           5           6

MACRS Rate   20%       32%      19%       12%       11%           6%

Depreciation  6000     9600    5700    3600     3300      1800

Acc. depre.     6000    15600   21300   24900  28200    30000

Book value    24000   14400    8700     5100     1800          0

Now

From the table we can see that the Book value of the asset at the end of the year 3 is $8,700.

Tax on the gain of the asset = ($17,000 - 8,700) * 25% = $2,075

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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answer; post closing trial balance;