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Acme Company officials are considering the replacement of its Allendale facility. If the decision is made to replace the Allendale Works, the building at that location will be sold. It can be sold for $300,000 net of taxes.

A new building in Grand Rapids will cost $750,000. Another $50,000 must be spent on modifications. Because the new building is closer to Acme’s customer base, Acme will save $75,000 each year if the Allendale Works is replaced. For capital budgeting purposes, Acme assigns a useful life of 10 years to the new building. At the end of the 10th year, the new building can be sold for $1million.

Depreciation amounts for years 1 through 10 are:

Yearly Depreciation:
1) 24k 2) 24k 3) 24k
4) 16k 5) 16k 6) 16k
7) 8k 8) 8k 9) 8k

Acme’s marginal income tax rate is 40%. The company has an 11% cost of capital, and the maximum acceptable payback period is 3 years.

Fill in the table below showing each year’s cash flow:

End of Year A-T Cash

0 _________

1 _________

2 _________

3 _________

4 _________

5 _________

6 _________

7 _________

8 _________

9 _________

10 _________

I really appreciate the help everyone.


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