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St. Mark's Shipyard is considering the replacement of an 8-year old machine that has been...

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Finance

St. Mark's Shipyard is considering the replacement of an 8-year old machine that has been fully depreciated and has no salvage value with a new one that will increase its earnings before depreciation (EBITDA) by $38,000 per year. This new machine will cost $135,000 and will have an estimated useful life of 8 years with no salvage value. The new machine will be depreciated using 5-year MACRS which means rates of 20%, 32%, 19%, 12%, 11%, and 6% during the first six years (and nothing thereafter). The applicable corporate tax rate is 30% and the WACC is 11%. Which of the following statements is the correct recommendation?

The equipment should not be replaced since the net present value would be less than zero

The equipment should be replaced because the net present value is $16,739.51

The equipment should be replaced because the net present value is $18,505.91

The equipment should be replaced because the net present value is $27,238.30

The equipment should be replaced because the net present value is $32,473.74

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