Question
High Tech Ltd. is considering the replacement of some equipment. The existingequipment was purchased two years ago for $80,000 and belongs in CCA class 9
High Tech Ltd. is considering the replacement of some equipment. The existingequipment was purchased two years ago for $80,000 and belongs in CCA class 9 (25%); right now, it can be sold for $60,000. Its resale value in five years will be$9,000. The new equipment will cost $120,000 and belongs in class 9 as well. Theresale value of the new equipment in five years will be $15,000. Additional working capital of $5,000 is required, the corporate tax rate is 43%, and the opportunity cost of capital is 15%. The company estimates that the new equipment will reduce cash outflows by $32,000 per year and will incur a cost of $2,400 per year for five years. Should the company replace the equipment?
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