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Business, 30.07.2020 06:01 EsiahJohnson

Green Moose Industries is a company that produces iBooks, among several other products. Suppose that Green Moose Industries considers replacing its old machine used to make iBooks with a more efficient one, which would cost $1,800 and require $250 annually in operating costs except depreciation. After-tax salvage value of the old machine is $600, while its annual operating costs except depreciation are $1,100. Assume that, regardless of the age of the equipment, Green Moose Industries’s sales revenues are fixed at $3,500 and depreciation on the old machine is $600. Assume also that the tax rate is 40% and the project’s risk-adjusted cost of capital, r, is the same as weighted average cost of capital (WACC) and equals 10%. Based on the data, net cash flows (NCFs) before replacement are and they are constant over four years.

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