One year? ago, your company purchased a machine used in manufacturing for $95,000. You have learned that...

90.2K

Verified Solution

Question

Finance

One year? ago, your company purchased a machine used inmanufacturing for $95,000.
You have learned that a new machine is available that offersmany advantages and you can purchase it for $165,000
today. It will be depreciated on a? straight-line basis over 10years and has no salvage value. You expect that the new machinewill produce a gross margin? (revenues minus operating expensesother than? depreciation) of $45,000
per year for the next 10 years. The current machine is expectedto produce a gross margin of $24,000
per year. The current machine is being depreciated on a?straight-line basis over a useful life of 11? years, and has nosalvage? value, so depreciation expense for the current machine is$8,636 per year. The market value today of the current machine is$60,000. Your? company's tax rate is 40%?, and the opportunity costof capital for this type of equipment is 12%.
The NPV of replacing the? year-old machine is $ (Round to thenearest? dollar.)
Should your company replace its? year-old machine??(Y/N)

Answer & Explanation Solved by verified expert

3.9 Ratings (578 Votes)

Book value of old machine 95000 8636 depreciation for one year 86364 Loss on sale of old machine 60000 86364 26364 Tax saving due to loss 26364 40 105456 After tax sale See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

One year? ago, your company purchased a machine used inmanufacturing for $95,000.You have learned that a new machine is available that offersmany advantages and you can purchase it for $165,000today. It will be depreciated on a? straight-line basis over 10years and has no salvage value. You expect that the new machinewill produce a gross margin? (revenues minus operating expensesother than? depreciation) of $45,000per year for the next 10 years. The current machine is expectedto produce a gross margin of $24,000per year. The current machine is being depreciated on a?straight-line basis over a useful life of 11? years, and has nosalvage? value, so depreciation expense for the current machine is$8,636 per year. The market value today of the current machine is$60,000. Your? company's tax rate is 40%?, and the opportunity costof capital for this type of equipment is 12%.The NPV of replacing the? year-old machine is $ (Round to thenearest? dollar.)Should your company replace its? year-old machine??(Y/N)