50.1K

Verified Solution

Link Copied!

One year ago, your company purchased a machine used in manufacturing for $ 100 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $ 170 000 today. It will be depreciated on a straight-line basis over ten years and has no salvage value.

One year ago, your company purchased a machine used in manufacturing for $100 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $170 000 today. It will be depreciated on a straight-line basis over ten years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $35 000 per year for the next ten years. The current machine is expected to produce a gross margin of $22 000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $9 091 per year. The market value today of the current machine is $50 000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%. Should your company replace its year-old machine? The NPV of replacing the year-old machine is $ (Round to the nearest dollar.)

Answer & Explanation Solved by verified expert

See Answer