Answered step by step
Verified Expert Solution
Question
1 Approved Answer
eBook The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depred
eBook
The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depred on a straightline basis, and it has years of remaining life. Its current book value is $ and it can be sold for $ at this time. Thus, the annual depreciation expense is $$ per year. If the old machine is not replaced, it can be sold for $ at the end of its useful life.
Dauten is offered a replacement machine which has a cost of $ an estimated useful life of years, and an estimated salvage value of $ The replacement machine is eligible for bonus depreciation at the time of purchase. The replacement machine would permit an output expansion, so sales would rise by $ per year; even so the new machine's much greater efficiency would cause operating expenses to decline by $ per year. The new machine would require that inventories be increased by $ but accounts payable would simultaneously increase by $ Dauten's marginal federalplusstate tax rate is and its WACC is
What is the NPV of the incremental cash flow stream? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.
$
Should the company replace the old machine?
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