One year? ago, your company purchased a machine used in manufacturing for $ 115,000. You have...

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One year? ago, your company purchased a machine used inmanufacturing for $ 115,000. You have learned that a new machine isavailable that offers many? advantages; you can purchase it for $150,000 today. It will be depreciated on a? straight-line basisover ten? years, after which it has no salvage value. You expectthat the new machine will contribute EBITDA? (earnings before?interest, taxes,? depreciation, and? amortization) of $ 55,000 peryear for the next ten years. The current machine is expected toproduce EBITDA of $ 24,000 per year. The current machine is beingdepreciated on a? straight-line basis over a useful life of 11?years, after which it will have no salvage? value, so depreciationexpense for the current machine is $ 10,455 per year. All otherexpenses of the two machines are identical. The market value todayof the current machine is $ 50,000. Your? company's tax rate is 35%?, and the opportunity cost of capital for this type of equipmentis 10 %. Is it profitable to replace the? year-old machine?

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Capital Budgeting Option 01 Existing machine Year EBIT Depreciation Profit Before Tax Tax Profit After Tax Cash Out Flow Cash In Flow Net Cash Flow Present Value 10 Present Value of Cash Flow a b c dbc ed35 fde g h igh j kI X K 0 24000 10455 13545 4741 8805 11500000 115000 1 11500000 1 24000 10455 13545 4741 8805 19259 19259 091 1750826 2 24000 10455 13545 4741 See Answer

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One year? ago, your company purchased a machine used inmanufacturing for $ 115,000. You have learned that a new machine isavailable that offers many? advantages; you can purchase it for $150,000 today. It will be depreciated on a? straight-line basisover ten? years, after which it has no salvage value. You expectthat the new machine will contribute EBITDA? (earnings before?interest, taxes,? depreciation, and? amortization) of $ 55,000 peryear for the next ten years. The current machine is expected toproduce EBITDA of $ 24,000 per year. The current machine is beingdepreciated on a? straight-line basis over a useful life of 11?years, after which it will have no salvage? value, so depreciationexpense for the current machine is $ 10,455 per year. All otherexpenses of the two machines are identical. The market value todayof the current machine is $ 50,000. Your? company's tax rate is 35%?, and the opportunity cost of capital for this type of equipmentis 10 %. Is it profitable to replace the? year-old machine?