Question

Sideshow Bob's Circus is considering replacing its current Whack a mole machines with a new and improved model. The old machines cost $800000 6 years ago and is being depreciated to zero using 10 year straight line depreciation. These old whack a mole machines has a current salvage value of $250000. THe new machines, the wacky mole cost $1000000 tpday and would be depreciated to zero using 5 year straight line depreciation and would have a five year useful life. Revenues would rise $50000 annually and operating costs would decrease $150000 annually if the old machines are replaced. The company's marginal tax rate is 25%.

1) Refer to Sideshow Bob's circus, what is the year 2 operating cash flow for this potential replacement project if Sideshow Bob's tax rate is 25%?

A) $180000

B) $60000

C) $200000

D) $150000

***Correct answer: A

2) Refer to Sideshow Bob's Circus, what is the initial cash flow for this potential replacement project if Sideshow Bob's tax rate is 25%?

A) -$732,500

B) -$982,500

C) -$750,000

D) -$767,500

***Correct Answer: A

How do you get these two answers? Pls show all work!

Answer 1

all work in simple words. No excel function is used.