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Last year Deiters Aluminum purchased a new press machine used in manufacturing for $308,000. At...

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Finance

Last year Deiters Aluminum purchased a new press machine used in manufacturing for $308,000. At a trade show the VP of Manufacturing learned about a new machine that is available that offers many advantages and can be purchased for $440,000 today. The new press machine would be depreciated on a straight line basis for 10 years after which it would have no salvage value. The VP of Manufacturing expects that the new machine will produce EBITDA (earnings before interest, taxes, depreciation and amortization) of $75,000 per year for the next 10 years. The current machine is expected to produce EBITDA of $49,000 per year. The current machine is being depreciated on a straight line basis over a useful life of 11 years after which it will have no salvage value; so the depreciation expense for the current machine is $28,000 per year. All other expenses of the two machines are identical. The market value of the current machine is $250,000. Your company's tax rate is 21% and the cost of capital is 12%. Calculate the NPV of the replacement decision and choose the best answer below.

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