10-14 Otter Outside Gear must decide whether to replace a 10 year old packing machine with...

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10-14 Otter Outside Gear must decide whether to replace a 10year old packing machine with a new one that costs. $142,600.Replacing the old machine will increase net operating income(excluding depreciation) from $75,000 to $105,000. It will decreaseNWC by $16,000. The new machine falls in the MACRS 5-year class. Ifthe new machine is purchased, it will be sold in six years for$20,000; whereas, if the old machine is kept, it will have nosalvage value in six years. The old machine has a current marketvalue of $7,260, and although its current book value is $6000, inone year the old machine's book value will be zero. The firm'smarginal tax rate is 35%, and its required rate of return is 10%.Should the new packing machine be purchased? Use NPV, IRR and MIRRto make your decision.

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cost of new machine 142600 recovery of working capital 16000 after tax selling price of old machine 72606000135 6819 incremental net cash outflow 119781 selling price of old equipment 7260 book value 6000 gain on sale 1260 tax on gain on sale35 441 after tax sale proceeds 7260441 6819 Year 1 2 3 4 5 6 Cost of equipment 142600 142600 142600 142600 142600 142600 Macrs rate 20 32 1920 1152 1152 576 See Answer

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10-14 Otter Outside Gear must decide whether to replace a 10year old packing machine with a new one that costs. $142,600.Replacing the old machine will increase net operating income(excluding depreciation) from $75,000 to $105,000. It will decreaseNWC by $16,000. The new machine falls in the MACRS 5-year class. Ifthe new machine is purchased, it will be sold in six years for$20,000; whereas, if the old machine is kept, it will have nosalvage value in six years. The old machine has a current marketvalue of $7,260, and although its current book value is $6000, inone year the old machine's book value will be zero. The firm'smarginal tax rate is 35%, and its required rate of return is 10%.Should the new packing machine be purchased? Use NPV, IRR and MIRRto make your decision.