The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an...
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The Woodruff Corporation purchased a piece of equipment threeyears ago for $230,000. It has an asset depreciation range (ADR)midpoint of eight years. The old equipment can be sold for $90,000.A new piece of equipment can be purchased for $320,000. It also hasan ADR of eight years. Assume the old and new equipment wouldprovide the following operating gains (or losses) over the next sixyears. Question: The firm has a 25 percent tax rate and a 9 percentcost of capital. Should the new equipment be purchased to replacethe old equipment? Explain your answer.
Ye New Equipment OldEquipment Year 1 $80,000 $25,000 1 2 76,000 16,000 2 3 70,000 9,000 3 4 60,000 8,000 4 5 50,000 6,000 5 6 45,000 (7,000) 6
The Woodruff Corporation purchased a piece of equipment threeyears ago for $230,000. It has an asset depreciation range (ADR)midpoint of eight years. The old equipment can be sold for $90,000.A new piece of equipment can be purchased for $320,000. It also hasan ADR of eight years. Assume the old and new equipment wouldprovide the following operating gains (or losses) over the next sixyears. Question: The firm has a 25 percent tax rate and a 9 percentcost of capital. Should the new equipment be purchased to replacethe old equipment? Explain your answer.
| Ye | New Equipment | OldEquipment Year |
| 1 | $80,000 | $25,000 1 |
| 2 | 76,000 | 16,000 2 |
| 3 | 70,000 | 9,000 3 |
| 4 | 60,000 | 8,000 4 |
| 5 | 50,000 | 6,000 5 |
| 6 | 45,000 | (7,000) 6 |
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You can see the logs in the Dashboard.