Response to the following problem:
The Nobel Dynamite Company is considering a new packing machine. The existing packing machine cost $500,000 five years ago and is being depreciated using straight-line over a ten-year life. Nobel's management estimates that the old machine can be sold for $100,000. The new machine costs $600,000 and would be depreciated over five years using straight-line. There is no salvage value for the new machine. The new machine is more efficient and would reduce packing expenses (damaged goods) by $120,000 per year for the next five years. The marginal tax rate is 30%.
a. What are the cash flows related to the acquisition of the new machine?
b. What are the cash flows related to the disposition of the old machine?
c. What are the cash flows related to the disposition of the new machine?
d. What are the operating cash flows for each year?
e. What are the net cash flows for each year?