Company A is considering the purchase of a new machine. The new machine is not expected to affect...

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Finance

Company A isconsidering the purchase of a new machine.
The new machine is notexpected to affect revenues, but pretax operating expenses will bereduced by $12,700 per year for 10 years.
The old machine is now5 years old, with 10 years of its scheduled life remaining. It wasoriginally purchased for $61,500 and has been depreciated by thestraight-line method.
The old machinecan be sold for $20,700 today
The new machinewill be depreciated by the straight-line method over its 10-yearlife.
The corporatetax rate is 35 percent.
The firm’srequired rate of return is 14 percent.
The initialinvestment, the proceeds from selling the old machine, and anyresulting tax effects occur immediately.
All other cash flowsoccur at year-end.
The market value ofeach machine at the end of its economic life is zero.
Determine thebreak-even purchase price in terms of present value of themachine.
41,000
83,561.84
77,533.79
43,059.03

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Company A isconsidering the purchase of a new machine.The new machine is notexpected to affect revenues, but pretax operating expenses will bereduced by $12,700 per year for 10 years.The old machine is now5 years old, with 10 years of its scheduled life remaining. It wasoriginally purchased for $61,500 and has been depreciated by thestraight-line method.The old machinecan be sold for $20,700 todayThe new machinewill be depreciated by the straight-line method over its 10-yearlife.The corporatetax rate is 35 percent.The firm’srequired rate of return is 14 percent.The initialinvestment, the proceeds from selling the old machine, and anyresulting tax effects occur immediately.All other cash flowsoccur at year-end.The market value ofeach machine at the end of its economic life is zero.Determine thebreak-even purchase price in terms of present value of themachine.41,00083,561.8477,533.7943,059.03