The Ally Gator Corporation of Meadville, PA, make of Ally’s…
The Ally Gator Corporation of Meadville, PA, make of Ally’s electronic components, is considering replacing one of its current hand-operated assembly machines with a new fully automated machine. Existing situation: Original depreciable value of old machine – $80,000 Expected life – 10 years Age – 5 years old Expected salvage value in five years – $0 Current salvage value – $15,000 Marginal tax rate – 34 percent Proposed situation: Fully automated machine resulting in annual savings of $42,000 Cost of machine – $86,000 Installation fee – $8,000 Expected life – five years, depreciated down to $0 Salvage value in 5 years – $30,000 What are the relevant after-tax free cash flows?