Question
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $225,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $95,000 per year; and Machine 360-6, which has a cost of $375,000, a 6-year life, and after-tax cash flows of $104,500 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components (microprocessors) used in the machines.
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Assume that Filkins' cost of capital is 10%. Calculate the two projects' NPVs. Round your answers to the nearest cent. Machine 190-3 $ ____ Machine 360-6 $ ____ Should the firm replace its old knitting machine, and, if so, which new machine should it use? Yes. Machine 360-6
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By how much would the value of the company increase if it accepted the better machine? Round your answer to the nearest cent. $ ___
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What is the equivalent annual annuity for each machine? Round your answer to the nearest cent.
Machine 190-3 $ ___ Machine 360-6 $ ___
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