Question
Can yo help me figure out how to calculate the NPV for this question? One yearago, your company purchased a machine used in manufacturing for
Can yo help me figure out how to calculate the NPV for this question?
One yearago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers manyadvantages; you can purchase it for $170,000 today. It will be depreciated on astraight-line basis over tenyears, after which it has no salvage value. You expect that the new machine will contribute EBITDA(earnings beforeinterest, taxes,depreciation, andamortization) of $45,000 per year for the next ten years. The current machine is expected to produce EBITDA of $24,000 per year. The current machine is being depreciated on astraight-line basis over a useful life of 11years, after which it will have no salvagevalue, so depreciation expense for the current machine is $10,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Yourcompany's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 10%. Is it profitable to replace theyear-old machine?
The NPV of the replacement is: ?
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