St. Johns River Shipyard’s welding machine is 15 years old, fully depreci- ated, and has no...

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St. Johns River Shipyard’s welding machine is 15 years old,fully depreci- ated, and has no salvage value. However, even thoughit is old, it is still functional as originally designed and can beused for quite a while longer. A new welder will cost $182,500 andhave an estimated life of 8 years with no salvage value. The newwelder will be much more efficient, however, and this enhancedefficiency will increase earnings before depreciation from $27,000to $74,000 per year. The new machine will be depreciated over its5-year MACRS recovery period, so the applicable depreciation ratesare 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Theapplicable cor- porate tax rate is 40%, and the project cost ofcapital is 12%. Should the old welder be replaced by the newone?
textbook answer: NPV: 11,468.48

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St. Johns River Shipyard’s welding machine is 15 years old,fully depreci- ated, and has no salvage value. However, even thoughit is old, it is still functional as originally designed and can beused for quite a while longer. A new welder will cost $182,500 andhave an estimated life of 8 years with no salvage value. The newwelder will be much more efficient, however, and this enhancedefficiency will increase earnings before depreciation from $27,000to $74,000 per year. The new machine will be depreciated over its5-year MACRS recovery period, so the applicable depreciation ratesare 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Theapplicable cor- porate tax rate is 40%, and the project cost ofcapital is 12%. Should the old welder be replaced by the newone?textbook answer: NPV: 11,468.48