Question
Dublin Inc. is considering replacing an old drilling machine that cost $200,000 six years ago with a new one that costs $450,000. Shipping and installation
Dublin Inc. is considering replacing an old drilling machine that cost $200,000 six years ago with a new one that costs $450,000. Shipping and installation cost an additional $60,000. The old machine has been depreciated using the straight-line (SL) method with no salvage value over an estimated 8-year useful life. The old machine can be sold for $40,000 now. Management expects increases in net working capital of $30,000 (inventories up $10,000, accounts receivable up $32,000, accounts payable up $12,000) if the new machine is acquired. Durable's income tax rate is30%- NOT 40%
What dollar amount should be used for thenet original investmentin time period 0to conduct this replacement decision?
-$500,000
-$510,000
-$497,000
-$470,000
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