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3. Builtrite C is considering replacing a five year old machine that originally cost $50,000, has a 10 year life, it is being depreciated down
3. Builtrite C is considering replacing a five year old machine that originally cost $50,000, has a 10 year life, it is being depreciated down to $0 and currently has a salvage value of $60,000. The replacement machine would cost $125,000 and have a five year life at which time it would have a $0 terminal value. The replacement machine would produce annual savings of $45,000 (before depreciation and taxes). Assume straight-line depreciation, a 34% marginal tax rate and a required rate of return of 10%.
Should Builtrite C purchase the machine?
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