Question
An officer for a large construction company is feeling nervous. The anxiety is caused by a new excavator just released onto the market. The new
An officer for a large construction company is feeling nervous. The anxiety is caused by a new excavator just released onto the market. The new excavator makes the one purchased by the company a year ago obsolete. As a result, the market value for the companys excavator has dropped significantly, from $400,000 a year ago to $40,000 now. In 10 years, it would be worth only $5,000. The new excavator costs only $650,000 and would increase operating revenues by$70,000 annually. The new equipment has a 10-year life and expected salvage value of $105,000. What should the officer do? The tax rate is 35%, the CCA rate, 24% for both excavators and the required rate of return for the company is 13%. Initial cost of new machine, Salvage value of old manchine, PV of cost savings, PV of salvage value of old manchine, CCA tax shield of original machine, CCA tax shield of new machine, NPV, and a recommendation please provide as much detail as possible
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started