5. Builtrite E is considering replacing one of its machines with a new, more efficient...
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5. Builtrite E is considering replacing one of its machines with a new, more efficient machine. The old machine was purchased for $200,000 five years ago and still has an expected life of five years. It is being depreciated down to $0. It has a current salvage value of $60,000. The new machine being considered has a cost of $300,000, a five year life, depreciation down to $0. At the end of five years, Builtrite E estimates that they can sell the new machine for $50,000. Also, due to efficiencies, the new machine would generate $90,000 in annual savings (before depreciation and taxes). Assume straight-line depreciation, a marginal tax rate of 34% and a required rate of return of 15%.
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