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Rockyford Company must replace some machinery that has zero book value and a current market value of $2,600. One possibilityComplete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine the

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Answer #1

1.Gain on sale of old machinery = Market value – Book value

= 2600-0

= $2600

Tax = 2600*40% =$1,040

Hence, after tax cash flow = 2600-1040

= $1,560

2.Present value = Annual savings*Present value annuity factor

= 19200*PVAF(14%, 4 years)

= 19200*2.9137

= $55,943

3.Year 1 Depreciation = $12000

Tax savings on depreciation = 12000*40% = $4800

Present value = 4800*Present value factor(14%, 1 year)

= 4800*0.8772

= $4,211

4.Should be treated as outflow today and inflow at the end of 4 years

Cost = The time value of money

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