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ABC is looking to purchase a new machine for a 3 year project, that will cost $770,000 and replace the old machine that they were
| ABC is looking to purchase a new machine for a 3 year project, that will cost $770,000 and replace the old machine that they were using. |
| The old machine was being depreciated but has been fully depreciated |
| The original cost of the old machine was $500,000, and it can be sold for $90,000. |
| The new machine's depreciation schedule and salvage value are listed below. |
| The new machine will result in annual cost savings of $225,000. |
| The new machine cannot make one of the company's old products so as a result they will lose $10,000 a year |
| in pre-tax profits. The project requires $10,000 in working capital that will be recapatured at the end of the project. |
| The new machine will result in annual cost savings of $225,000. Should they go forward with the change? |
| Depreciation MACRS - NEW | 33.33%, 44.45%, 14.81%, 7.41% |
| Purchase Price New | $ 770,000 |
| Purchase Price, Old | $ 500,000 |
| WACC | 7.50% |
| Tax rate | 25.00% |
| Salvage Value (New) | $ 200,000 |
| Salvage Value (Old) | $ 90,000 |
| Working Capital Req | $ 10,000 |
| Lost Pretax Profits | $ 10,000 |
| Cost Savings (Annual) | $ 225,000 |
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Financial Modeling Using Excel And VBA
Authors: Chandan Sengupta
1st Edition
0471267686, 978-0471267683
