ABC Co is considering replacing an old power generator with a new one. the old one...

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ABC Co is considering replacing an old power generator with anew one. the old one was purchased 5 years ago for $100,000. It isdepreciated straightline to zero over its 10 year life. it isexpected to be worthless at the end of its 10 year life. if ABCsells it today, ABC should receive $65,000 for the generator. thenew generator costs $150,000. it has a life of 5 years and will bedepreciated straightline to zero over its 5 year life. it isexpected to be worthless at the end of its 5 year life. the newgenerator is expected to reduce the operating costs by $50,000 peryear. there is no change in net working capital. the discount rateof this replacement is 15% and the tax rate is 40%.

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For old machine Depreciation expense is 10000010 or 10000 peryear cost the tax savings is 1000040 or 4000 per yearThe present value of 4000 savings per See Answer

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