Smiley Toys Pty is considering updating its production processing plant. The current plant was set up 6 years of at the cost of $$500,000. The plant has the useful life to 10 years and hence still has useful life of 4 years remaining. There will no savage value of the old plan at the end of its useful life. But, if the company decides to updates its plant, then old plan can be sold for $150,000 now.

The proposed machine for new plant will cost $700,000 and it will cost another $5000 for installation. The new machine’s useful life is 4 years, and company depreciates it all assets using the straight-line depreciation method. The company’s working capital will increase by $25,000 and this cost is expected to recover in full at the end of the machine’s useful life. The company is subject corporate tax rate of 40%.

Required:

Calculate the net proceeds from selling the old machine assuming proposed plan for upgrading the plan is implemented.

Calculate the initial investment required for purchasing the new machine.

Calculate incremental depreciation expenses.

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