Hello

One yearago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers manyadvantages; you can purchase it for $150,000 today. It will be depreciated on astraight-line basis over tenyears, after which it has no salvage value. You expect that the new machine will contribute EBITDA(earnings beforeinterest, taxes,depreciation, andamortization) of $50,000 per year for the next ten years. The current machine is expected to produce EBITDA of $21,000 per year. The current machine is being depreciated on astraight-line basis over a useful life of 11years, after which it will have no salvagevalue, so depreciation expense for the current machine is $10,909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Yourcompany's tax rate is 38%, and the opportunity cost of capital for this type of equipment is 11%. Is it profitable to replace theyear-old machine?

1. What is the NPV of the replacement?