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Q 10 St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a...

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Finance

Q 10

St. Johns River Shipyards is considering the replacement of an8-year-old riveting machine with a new one that will increaseearnings before depreciation from $27,000 to $52,000 per year. Thenew machine will cost $82,500, and it will have an estimated lifeof 8 years and no salvage value. The new machine will bedepreciated over its 5-year MACRS recovery period; so theapplicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%.The applicable corporate tax rate is 40%, and the firm's WACC is10%. The old machine has been fully depreciated and has no salvagevalue.

What is the NPV of the project? Negative value, if any, shouldbe indicated by a minus sign. Round your answer to the nearestcent.
$   

Should the old riveting machine be replaced by the newone?
-Select-YesNoItem 2

Answer & Explanation Solved by verified expert
4.1 Ratings (738 Votes)
NPV present value of cash flows initial investmentpresent value of cash flows net cashflow1WACCyearNPV is 10946405Yes the old riveting    See Answer
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