Table 11.5
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.
-The cash flow pattern for the capital investment proposal is ________. (See Table 11.5)

Question

Quizplus · Accepted Answer

The cash flow pattern for the capital investment proposal is a mixed stream and conventional because the cash flows are not equal and the depreciation method is conventional.

Table 11.5 Cuda Marine Engines, Inc. Must Develop the Relevant Cash Flows