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Brooklyn Corporation has a used machine with a current book value of $ 1 . 2 million that it can sell today for $ 2
Brooklyn Corporation has a used machine with a current book value of $ million that it can sell today for $ million. It can keep the machine for eight more years, but the annual maintenance costs will be $ next year and increase at a annual rate. Yearly depreciation for income tax purposes will be $$ million years The machine's expected selling price at the end of eight years is $A replacement machine is available at a cost of $ million. It will last for eight years, have annual maintenance costs of $ next year, increasing at a annual rate, and an expected residual value of $ Brooklyn will use straightline depreciation over eight years to a $ million residual value on its tax return.At the end of eight years, Brooklyn will have to replace either machine at a cost of $ million.Brooklyn's averagecombined federal and state income tax rate is its marginal combined income tax rate is and its required rate of return is The company has sufficient income to benefit from depreciation tax shields.
Using Net Present Value analysis, should Brooklyn replace the used machine today?
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