REPLACEMENT PROJECT ANALYSIS
REPLACEMENT PROJECT ANALYSIS
REPLACEMENT PROJECT ANALYSIS
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App11B_SW_Brigham_778312_R2 1/6/03 9:12 PM Page 11B-6<br />
11B-6<br />
c. What are the operating cash flows in Years 1 through 5?<br />
d. What is the cash flow from the salvage value in Year 5?<br />
e. Should the firm purchase the new machine? Support your answer.<br />
f. In general, how would each of the following factors affect the investment decision, and how<br />
should each be treated?<br />
(1) The expected life of the existing machine decreases.<br />
(2) The cost of capital is not constant but is increasing as Bigbee adds more projects into<br />
its capital budget for the year.<br />
APPENDIX 11B ■ <strong>REPLACEMENT</strong> <strong>PROJECT</strong> <strong>ANALYSIS</strong>
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