Question
Dollarmites Inc. is considering replacing its existing machinery with new, more efficient equipment. The old machinery was purchased 4 years ago for $3,000,000 and had
Dollarmites Inc. is considering replacing its existing machinery with new, more efficient equipment. The old machinery was purchased 4 years ago for $3,000,000 and had an estimated useful life of 6 years; it can be sold today for $1,500,000. The new machine will cost $5,000,000 but will have a 10 year life and scrap value at the end of the 10 years of $2,000,000. The new equipment will require shipping and installation costs of $250,000 and $100,000 respectively. As the new equipment is more efficient, it will also require an increase in net working capital of $1,000,000 at t=0. Dollarmites Inc. depreciates all assets using straight-line method over the asset's useful life and pays tax at the company rate of 30%. The initial investment at t=0 for the incremental decision of selling the old and buying the new machine is (to the nearest dollar):
Select one:
($6,050,000)
($6,400,000)
($6,000,000)
($5,650,000)
($5,000,000)
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