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Cash flows from old and new machines

Who's Benefit?

Introduction:

The Shine Company installs a special machine for polishing cars at one of its outlets, on the first day of the fiscal year. The machine costs the company $20,000, and its annual cash operating costs total $15,000. The machine will have a four-year useful life and a zero terminal disposal value.

The next day, a salesperson offers the company another machine that promises to do the same job at annual cash operating costs of $9,000. The new machine will cost $24,000 cash, installed. The "old" machine is unique and can be sold outright for only $10,000, minus $2,000 removal cost. The new machine, like the old one, will have a four-year useful life and zero terminal disposal value. Revenues, all in cash, will be $150,000 annually. Other cash costs will be $110,000 annually, regardless of this decision.

For simplicity, ignore taxes and the time value of money.

Task(s):

Prepare a statement of cash receipts and disbursements for each of the four years under each alternative. What is the cumulative difference in cash flow for the four years taken together?

Deliverables and format:
Microsoft Excel document, showing all computations

Solution Summary

The answer contains the comparative analysis of cash flows from exisiting machine and new machine

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