One yearâ€‹ ago, your company purchased a machine used in manufacturing for $ 120, 000. You...

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One yearâ€‹ ago, your company purchased a machine used inmanufacturing for $ 120, 000. You have learned that a new machineis available that offers many advantages and you can purchase itfor $ 140, 000 today. It will be depreciated on aâ€‹ straight-linebasis over 10 years and has no salvage value. You expect that thenew machine will produce a gross marginâ€‹ (revenues minus operatingexpenses other thanâ€‹ depreciation) of $ 60,000 per year for thenext 10 years. The current machine is expected to produce a grossmargin of $ 23,000 per year. The current machine is beingdepreciated on aâ€‹ straight-line basis over a useful life of 11â€‹years, and has no salvageâ€‹ value, so depreciation expense for thecurrent machine is $ 10,909 per year. The market value today of thecurrent machine is $ 45,000. Yourâ€‹ company's tax rate is 45 %â€‹, andthe opportunity cost of capital for this type of equipment is 10 %.Should your company replace itsâ€‹ year-old machine?
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The NPV of replacing theâ€‹ year-old machine is(...) â€‹(Round to the nearestâ€‹ dollar.)

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Calculation of NPV of replacing the old machine Net Initial Investment Cost of new machine sale proceeds of old machine tax on sale proceeds Cost of new machine 140000 Sale See Answer

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