solution

AL-BAZAR Company is contemplating the purchase of a new grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $55,300; it was being depreciated straight-line for 5 years. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $105,800 and requires $4,500 in installation costs; it has a 5-year usable life and would be depreciated on a straight-line basis. AL-BAZAR can currently sell the existing grinder for $70,900 without incurring any removal or cleanup costs. To support the increased business resulting from the purchase of the new grinder, accounts receivable would increase by $40,400, inventories by $29,000, and accounts payable by $57,600. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $29,200 after removal and cleanup costs and before taxes and all the funds invested in NWC will be recovered. The firm is subject to a 40% tax rate. MACRS 5-years recovery period