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Heel & Sole, Inc., is considering the purchase of a new leather - cutting machine to replace an existing machine that has a book value
Heel & Sole, Inc., is considering the purchase of a new leathercutting machine to replace an existing machine that has a book value of $ and can be sold for $ The estimated salvage value of the old machine in years is zero. The new machine will reduce costs before tax by $ per year; that is $ cash savings over the old machine. The new machine has a year life, costs $ and can be sold for an expected $ at the end of the fourth year it will be depreciated to a book value of $ Assuming straightline depreciation for both machines, a tax rate, and a cost of capital of find the NPV of this replacement decision.
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