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(Solved): POM Bakery is considering replacement of a custard injecting machine with a new high-speed injector, ...



POM Bakery is considering replacement of a custard injecting machine with a new high-speed injector, which can fill twice as many cakes per hour as the old machine. The existing injection machine was purchased 2 years ago for $400,000. It could be sold today for $190,000 and its expected salvage value in two years is $45,000. The new custard injector costs $345,000. The new machine will be sold for $145,000 at the end of 2 years. The new machine will increase EBITDA by $75,000 per year but it also requires $10,000 extra inventory of milk, butter, eggs and sugar. Assume that depreciation is not tax deductible. The tax rate is 40%. What are incremental operating cash flows in the first year after the replacement? (Answer in dollars and round to the nearest dollar.)


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