Question

As a result of improvements in product engineering, united automation is able to sell one of its two milling machines. both machines perform the same function but differ in age. the newer machine could be sold today for $59,000. its operating costs are $21,200 a year, but at the end of five years, the machine will require a $19,400 overhaul (which is tax deductible). thereafter, operating costs will be $30,600 until the machine is finally sold in year 10 for $5,900. the older machine could be sold today for $25,600. if it is kept, it will need an immediate $23,000 (tax-deductible) overhaul. thereafter, operating costs will be $32,900 a year until the machine is finally sold in year 5 for $5,900. both machines are fully depreciated for tax purposes. the company pays tax at 21%. cash flows have been forecasted in real terms. the real cost of capital is 10%.

Answer 1

new machine = -$23133.44

old machine = -$22135.67

Spending that occurs in the normal course of business is included in the cash flow. Payroll, the cost of items sold, rent, and utility bills are a few examples of these cash outflows. When corporate operations are very seasonal, cash outflows might vary greatly.