PART III1. The Fleming Company, a food distributor, is considering replacing a filling line at its Oklahoma City warehouse. The existing line was purchased several years ago for $600,000. The line’s book value is $200,000, and Fleming management feels it could be sold at this time for $150,000. A new, increased capacity line can be purchased for $1,200,000. Delivery and installation of the new line are expected to cost an additional $100,000. Assuming Fleming’s marginal rate is 40 percent, calculate the net investment for the new line.2. International Foods Corporation (IFC) currently processes seafood with a unit it purchased several years ago. The unit, which originally cost $500,000, currently has a book value of $250,000. IFC is considering replacing the existing unit with a newer, more efficient one. The new unit will cost $700,000 and will require an additional $50,000 for delivery and installation. The new unit also will require IFC to increase its investment in initial new working capital by $40,000. The new unit will be depreciated on a straight-line basis over 5years to a zero balance. IFC expects to sell the existing unit for $275,000. IFC’s marginal tax rate is 40 percent.If IFC purchase the new unit, annual revenues are expected to increase by $100,000 (due to increased processing capacity), and annual operating costs (exclusive of depreciation) ate expected to decrease by $20,000. Annual revenues and operating costs are expected to remain constant at this new level over the 5-year life of the project. IFC estimates that its net working capital investment will increase by $10,000 per year over the life of the project. After 5 years, the new unit will be completely depreciated ...
